Lessons from the Uninsured Self-Employed

To the extent that the goal of public policy is to increase the utilization of health care services among the self-employed, providing them with health insurance subsidies may not be an efficacious measure.

Some 81 percent of wage-earners in the United States are covered by health insurance. But in 1996 only 68 percent of the self-employed under age 63 had health insurance. The remaining 32 percent were among the approximately 44.2 million Americans, or 16 percent of the population, who lack any kind of medical insurance.

The principal public policy response for helping the self-employed has been to subsidize their purchases of health insurance through the personal income tax. Currently, self-employed workers are allowed to deduct 60 percent of their health-insurance premiums. This is up from 45 percent in 1998. Recent legislation will boost the deduction to 70 percent in 2002 and 100 percent in 2003 and thereafter. However, research by Craig William Perry and NBER Research Associate Harvey Rosen indicates that the link for the self-employed between having medical insurance and utilizing health care services is not as strong as assumed in the policy debate.

In Insurance and the Utilization of Medical Services Among the Self-Employed (NBER Working Paper No. 8490), Perry and Rosen find that the gap in the utilization of health care services between the self-employed and wage-earners is generally fairly small. Indeed, for some important services there is no substantial gap at all. Further, they find no evidence that the medical expenditures of the self-employed reduce their capacity to purchase other commodities. On average, the self-employed devote only 0.4 percent more of their incomes to out-of-pocket medical expenditures than wage-earners. Nor are the children of the self-employed less likely to have access to medical services than the children of wage-earners.

The authors conclude: "The self-employed thus appear to be able to finance access to health care from sources other than insurance. Perhaps the source is their own wealth, or perhaps they have better access to borrowing than wage-earners. In any case, to the extent that the goal of public policy is to increase the utilization of health care services among the self-employed, providing them with health insurance subsidies may not be an efficacious measure."

The authors draw upon the 1996 Medical Expenditure Panel Survey. It covered about 22,000 respondents from 9,500 families. After excluding some respondents for various reasons, the authors end up with 9,552 individuals, of whom 1,158, or 12 percent, are self-employed; that's close to the proportion of self-employed in the entire nation.

The authors find no statistically significant differences in utilization rates between wage-earners and the self-employed in hospital admissions, hospital stays, dental checkups, and optometrist visits. The self-employed have higher utilization rates for alternative care, and chiropractor visits.

There are areas where the utilization rates are statistically significantly lower for the employed. But whether these differences are "large" may lie in the eyes of the beholder, the authors write. For example, other things being the same, the probability of visiting a doctor is only 5.9 percentage points (or 9 percent) less. On the other hand, the probability of receiving a breast exam is 8.0 percentage points (or 27 percent) less. Such tests as mammograms and prostate exams are generally recommended for people over the age of 40. When those under that age are excluded from the data, the differences are only 14 percent for women and 17 percent for men. To the extent that there are substantial differences in utilization rates of certain medical tests for the self-employed, "it is not clear that the solution is a special deduction for health insurance in the tax code," Perry and Rosen write.

-- David R. Francis