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

Amy Finkelstein, Nathaniel Hendren and Mark Shepard

No 23668, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H51 I13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea and nep-ias
Date: 2017-08
Note: HC PE
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Published as Amy Finkelstein & Nathaniel Hendren & Mark Shepard, 2019. "Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts," American Economic Review, vol 109(4), pages 1530-1567.

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