Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts

58 Pages Posted: 17 Aug 2017

See all articles by Amy Finkelstein

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Nathaniel Hendren

Harvard University - Department of Economics

Mark Shepard

Harvard University - Harvard Kennedy School (HKS)

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Date Written: August 2017

Abstract

How much are low-income individuals willing to pay for health insurance, and what are the implications for insurance markets? Using administrative data from Massachusetts’ subsidized insurance exchange, we exploit discontinuities in the subsidy schedule to estimate willingness to pay and costs of insurance among low-income adults. As subsidies decline, insurance take-up falls rapidly, dropping about 25% for each $40 increase in monthly enrollee premiums. Marginal enrollees tend to be lower-cost, consistent with adverse selection into insurance. But across the entire distribution we can observe – approximately the bottom 70% of the willingness to pay distribution – enrollee willingness to pay is always less than half of own expected costs. As a result, we estimate that take-up will be highly incomplete even with generous subsidies: if enrollee premiums were 25% of insurers’ average costs, at most half of potential enrollees would buy insurance; even premiums subsidized to 10% of average costs would still leave at least 20% uninsured. We suggest an important role for uncompensated care for the uninsured in explaining these findings and explore normative implications.

Suggested Citation

Finkelstein, Amy and Hendren, Nathaniel and Shepard, Mark, Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts (August 2017). NBER Working Paper No. w23668, Available at SSRN: https://ssrn.com/abstract=3018327

Amy Finkelstein (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Nathaniel Hendren

Harvard University - Department of Economics ( email )

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Mark Shepard

Harvard University - Harvard Kennedy School (HKS) ( email )

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Cambridge, MA 02138
United States

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