The Uninsured and the Price of Insurance

The cornerstone of the Administration’s reform law was an expansion of coverage through Medicaid and through an individual mandate, with individuals being able to purchase through exchanges and some individuals eligible for subsidies.  How many people will enroll?  A new piece of research posted at the National Bureau of Research suggests that the number may be higher than the official estimates.   (NBER Paper)  The research is based on surveying a number of individuals about how much they would pay for insurance coverage.  The research tagged on to an ongoing daily health-relayed survey by Gallup.  Around 1330 uninsured people were asked how much they would be willing to pay for an insurance policy like members of Congress have.  Because of other questions that Gallup asks, information about the respondent’s health status and other factors were available.

The uninsured people were generally younger, more likely to be male and single, and obviously have significantly less income than the insured ones.  The price stated started at $4000 for some respondents, and if the answer was no, it was lowered first to $3000, then to $2000.  Others randomly started at $3000 and were lowered to $2000.  About 27% would pay the $4000 a year, about 11% more would pay the $3000 and over 50% would pay $2000.  Since the price is subsidized for many of these people, high takeup rates are assumed if a plan could be offered in the exchanges that had a price of $4000 or less, since the effective price with a subsidy would be much less.  The presence of a penalty if you don’t get coverage would also presumably affect uptake.

The authors conclude that 39 million people will gain coverage between Medicaid and private insurance and there will be no adverse selection.  Unfortunately there are several flaws in their method and reasoning.  It is not clear that the question asked assumed a subsidy.  If not the price suggested is almost certainly far too low.  Even the low version of the FEHBP plan is not currently under $4000 for individual coverage and FEHBP is unusual in that it is a very large group and has a legislative requirement that it receive the lowest price the insurer offers any large group.  The average cost even of employer-provided coverage for an individual is at least $6000, so exchange pricing is likely to reflect that.  Furthermore, the base FEHBP plan has relatively high cost-sharing for individuals, so the out-of-pocket cost is more than just the premium share, in fact the cost share probably is more than the cost-share after any subsidy that an individual might be eligible for.  Considering the total cost, it is unlikely as many people as the researchers suggest will enroll.  And given that cost-sharing, the people most likely to enroll might be either the very healthy or the very sick, so some adverse selection could be at work.