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Appendix: Don't waste the people's money bailing out a failing private health insurance syst

Gerald Friedman, Professor of Economics, University of Massachusetts at Amherst

Appendix: estimating the cost of coverage for the newly unemployed

  1. The number of first-time unemployment claims for the three weeks ending April 17, 2020 is 26.5 million from the Department of Labor.[6]

  2. Two estimates are used for the share of first-time unemployment claims. The Economic Policy Institute has estimated that 40% of those losing jobs had employment-related health insurance.[7] This is lower than the 58% of employees with employment-related health insurance.[8] These estimates give us lower upper bounds for the number losing health insurance coverage, between 10.6 million and 15.4 million.

  3. Some with private health insurance cover family members. The number with group health insurance is from the Kaiser Family Foundation.[9] The number of employees with health insurance coverage is from the Medical Expenditure Panel Survey.[10] Dividing the number of people with employment-related health insurance (157 million) by the number of employees covered (66 million) gives 2.38 people covered for every employee enrolled.

  4. Total spending on private health insurance is taken from national health expenditures for 2020 (projected pre-virus) as $1.3 trillion including personal healthcare and the administrative costs of private healthcare. Average per capita spending for all private health insurance is $7598, total spending divided by the number covered. (177 million). This number is applied to employment-related health insurance.

  5. The average medical loss ratio is estimated at 87% including an out-of-pocket spending ratio of 13%.[11] Total per capita spending including out-of-pocket is estimated as $8601, including out-of-pocket (1.13×$7598)

  6. Spending by the newly unemployed is estimated as the number losing coverage times the number of people per newly unemployed worker times average spending. This is the sum that would be replaced if the Federal government simply assumed the cost of the existing employment-related system.

  7. Medicare is operating at a lower administrative cost with the medical loss ratio of 98.4%.[12] Substituting this into the estimate of total costs lowers the per capita cost of coverage from $7598 to $6139. Including the same dollar spending for out-of-pocket costs gives a figure of $7142 as the per capita cost of providing the same coverage with a lower administrative cost, a savings of about $1400 per person.

  8. Medicare also drives harder bargains with hospitals and physicians, lowering hospital reimbursements by over 49% and physician reimbursements by 15%.[13] Applying to these savings to the hospital share of aggregate spending and physician share of spending, gives savings of 18% and 3% for total markdown of 21%. The full Medicare savings is the sum of the markdown in price and the administrative savings.

  9. Finally, existing Medicare has an actuarial value of only around 80%, with 20% out-of-pocket spending.[14] Two estimates are made of the cost to the federal government of this Medicare expansion: at the current actuarial value (80%) and at the actuarial projected for proposed Improved Medicare for All legislation (96%).

  10. I am assuming no change in utilization either with the Coronavirus or with changes in plan design and cost-sharing.

[1] Abbe R. Gluck and Timothy Stoltzfus Jost, “Perspective | What Happens When Our Insurance Is Tied to Our Jobs, and Our Jobs Vanish?,” Washington Post, accessed April 14, 2020,

[2] Tricia Brooks et al., “Medicaid and CHIP Eligibility, Enrollment, and Cost Sharing Policies as of January 2020: Findings from a 50-State Survey,” The Henry J. Kaiser Family Foundation (blog), March 26, 2020,

[3] Eoin Higgins, “Nothing But a Taxpayer ‘Subsidy to Insurers’: Democrats Float Plan to Backstop For-Profit Healthcare Industry During Covid-19 Pandemic,” Common Dreams, accessed April 16, 2020,

[4] Eric Lopez, Gretchen Jacobson, and Larry Levitt, “How Much More Than Medicare Do Private Insurers Pay? A Review of the Literature,” The Henry J. Kaiser Family Foundation (blog), April 15, 2020,

[5] The exact number depends on estimates of the number of newly unemployed losing their employer-provided health insurance.

[6] Federal Reserve Bank of St. Louis, “Economic Data Series by Tag | FRED | St. Louis Fed,” accessed March 8, 2018,

[7] Ben Zipperer and Josh Bivens, “3.5 Million Workers Likely Lost Their Employer-Provided Health Insurance in the Past Two Weeks,” Economic Policy Institute (blog), accessed April 14, 2020,

[8] KFF, “Coverage at Work: The Share of Nonelderly Americans with Employer-Based Insurance Rose Modestly in Recent Years, but Has Declined Markedly Over the Long Term,” The Henry J. Kaiser Family Foundation (blog), February 1, 2019,

[9] Kaiser Family Foundation, “Health Insurance Coverage of the Total Population,” The Henry J. Kaiser Family Foundation (blog), September 19, 2017,

[10] Agency for Healthcare Research and Quality, “Medical Expenditure Panel Survey,” 2017,

[11] Matthew Rae, Rebecca Copeland, and Cynthia Cox, “Tracking the Rise in Premium Contributions and Cost-Sharing for Families with Large Employer Coverage,” Peterson-Kaiser Health System Tracker (blog), accessed April 14, 2020,

[12] This is estimated by dividing administrative spending on Medicare by Medicare spending outside of Part C (Medicare Advantage).

[13] Lopez, Jacobson, and Levitt, “How Much More Than Medicare Do Private Insurers Pay?”; Jared Maeda and Lyle Nelson, “An Analysis of Hospital Prices for Commercial and Medicare Advantage Plans” (Congressional Budget Office, June 26, 2017),; Adam I. Biener and Thomas M. Selden, “Public And Private Payments For Physician Office Visits,” Health Affairs 36, no. 12 (December 1, 2017): 2160–64,

[14] KFF, “How Does the Benefit Value of Medicare Compare to the Benefit Value of Typical Large Employer Plans?: A 2012 Update,” The Henry J. Kaiser Family Foundation (blog), April 5, 2012,

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