Losses (and Gains) from Health Reform for Non‐Medicaid Uninsureds

• Date: 01 March 2020
• Author: Mark Pauly,Scott Harrington,Adam Leive
• DOI: http://doi.org/10.1111/jori.12255
• Published date: 01 March 2020

LOSSES (AND GAINS)FROM HEALTH REFORM FOR

NON-MEDICAID UNINSUREDS

Mark Pauly

Adam Leive

Scott Harrington

ABSTRACT

This article examines how the Affordable Care Act (ACA) would change

financial resources for and transfers to the previously uninsured if they were

to purchase coverage in the ACA insurance exchanges (marketplaces) in

2014. The results suggest that the law provides gains to some, relative to their

spending in the pre-ACA period, particularly those in poor health and with

very low incomes, but it also potentially imposes financial losses on many,

again compared to their experience when uninsured. We estimate changes in

expected payments—defined as premiums plus expected out-of-pocket

costs—from purchasing coverage and paying cost sharing post-ACA,

relative to expected out-of-pocket payments when being uninsured pre-

ACA, across population subgroups characterized by income, age, and health

status. We also estimate changes in expected transfers to the previously

uninsured under alternative assumptions on how much health care

spending increases after the ACA.

INTRODUCTION

A major objective of the Affordable Care Act (ACA) was to increase the take-up of

insurance and thus to increase the total amount and types of medical care used by the

formerly uninsured. The ACA included three main provisions intended to reduce the

number of uninsured with incomes above Medicaid eligibility thresholds (138

percent of the Federal Poverty Level [FPL] in states that expanded Medicaid): (1) an

individual mandate that imposed a financial penalty if individuals remain uninsured

Mark Pauly is at the Health Care Management Department, The Wharton School, University of

Pennsylvania, 208 Colonial Penn Center, 3641 Locust Walk, Philadelphia, PA 19104-6218. He

can be contacted via e-mail: pauly@wharton.upenn.edu. Adam Leive is an Assistant Professor

of Public Policy and Economics at Frank Batten School of Leadership & Public Policy,

University of Virginia, 109 Garrett Hall, 235 McCormick Road, Charlottesville, VA 22904. He

can be contacted via e-mail: leive@virginia.edu. Scott Harrington is at the Health Care

Management Department, The Wharton School, University of Pennsylvania, 206 Colonial Penn

Center, 3641, Locust Walk, Philadelphia, PA 19014-6218. He can be contacted via e-mail:

harring@wharton.upenn.edu.

2018 The Journal of Risk and Insurance (2018).

DOI: 10.1111/jori.12255

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(subject to an exception if coverage is “unaffordable”); (2) premium subsidies to

persons/households with incomes from 100 to 400 percent of FPL who obtain

individual insurance through the exchanges, and cost-sharing subsidies to persons

with incomes up to 250 percent of FPL who purchase Silver coverage through the

exchanges; and (3) prohibiting underwriting and pricing based on health risk and

instead requiring guaranteed issue of coverage at age-adjusted community rates.

Financial penalties for failing to obtain coverage were repealed in late 2017. Direct

federal reimbursement of insurers for cost-sharing subsidies ceased in 2017, but

insurers in most states were permitted to raise 2018 rates for certain coverages

to offset the reduction in federal payments.

Enrollment by the previously uninsured in the ACA health insurance exchanges has

been below initial expectations (Levitt et al., 2016), especially by those with higher

incomes (Avalere, 2015). Some surveys point to the perceived high cost and low

benefits of coverage (in terms of net of subsidy premiums and high levels of cost

sharing) and the relatively low penalties for remaining uninsured (prior to their

repeal) as the main reasons behind this shortfall (DiJulio, Firth, and Brodie, 2015). This

experience has led to heightened interest in why many people with incomes above

poverty fail to purchase insurance.

A main economic narrative for why willingness to pay for health insurance may be

low for those not eligible for public coverage considers the availability of informal or

implicit insurance for the uninsured through charity care and bad-debt forgiveness

and, in some cases, formal bankruptcy (Herring, 2005; Mahoney, 2015; Finkelstein,

Mahoney, and Notowidigdo, forthcoming; see also Zewde, 2016). Average health

care spending by the uninsured is considerably lower than for the insured, and it is

well known that the uninsured on average pay for only a relatively small fraction of

the care they receive (e.g., Herring, 2005; Coughlin et al., 2014). Herring (2005), for

example, presents evidence that the availability of charity care reduces take-up of

health insurance by persons not eligible for Medicaid. Mahoney (2015) presents

evidence that charity care, bad debt, and bankruptcy protection provide implicit

protection analogous to high-deductible insurance, with the deductible depending on

the person’s assets not protected under bankruptcy law. The key implication of this

research, analogous to work on the crowd out of private insurance by public

insurance, is that informal insurance substitutes for formal coverage, reducing

willingness to pay for formal insurance.

1

Within this context, the ACA’s premium subsidies and original mandate to purchase

formal coverage or pay a penalty should reduce the cost of “uncompensated” medical

care that would otherwise be borne by other parties. In addition to reducing adverse

selection associated with guaranteed issue and age-adjusted community rating, the

individual mandate’s goal was to encourage coverage take-up and reduce

uncompensated care for the uninsured with higher incomes.

2

By expanding the

1

Similarly, in the case of the poor, substitution of formal for informal insurance also reduces the

value of Medicaid (Finkelstein, Hendren, and Luttmer, 2015).

2

Indeed, the ACA provision imposing financial penalties on those who failed to obtain qualified

coverage is called the “individual shared responsibility provision.”

2THE JOURNAL OF RISK AND INSURANCE

2The Journal of Risk and Insurance

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