Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts
Name
aer.20171455.pdf
Description
Published version
Size
1.03 MB
Format
Adobe PDF
Checksum (MD5)
3d5c5e04168b8b5d4a6508efc11cd99b
Author(s)
Finkelstein, Amy
Hendren, Nathaniel
Shepard, Mark
Date Issued
April 2019
Journal
American Economic Review
Publisher
American Economic Association
Citation
Finkelstein, Amy et al. "Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts."
American Economic Review 109, 4 (April 2019): 1530-1567 © 2019 American Economic Association.
Version
Final published version
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 percent for each $40 increase in monthly enrollee premiums. Marginal enrollees tend to be lower-cost, indicating adverse selection into insurance. But across the entire distribution we can observe (approximately the bottom 70 percent of the willingness to pay distribution) enrollees' willingness to pay is always less than half of their own expected costs that they impose on the insurer. As a result, we estimate that take- up will be highly incomplete even with generous subsidies. If enrollee premiums were 25 percent of insurers' average costs, at most half of potential enrollees would buy insurance; even premiums subsidized to 10 percent of average costs would still leave at least 20 percent uninsured. We briefly consider potential explanations for these findings and their normative implications.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/aer.20171455
