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Affordable Care Act Issues in the Trump Era

Paper Session

Friday, Jan. 4, 2019 2:30 PM - 4:30 PM

Hilton Atlanta, 303
Hosted By: Health Economics Research Organization
  • Chair: Jonathan Gruber, Massachusetts Institute of Technology

Why Does Insurance Reduce Borrowing? Evidence from the ACA Medicaid Expansion

Martin Hackmann
,
University of California-Los Angeles
Daniel Grodzicki
,
Pennsylvania State University
Kenneth Brevoort
,
Consumer Financial Protection Bureau

Abstract

Using a nationally representative panel of 5 million credit reports, we assess the effects of the ACA Medicaid expansion on household borrowing behavior. Despite improved access to credit markets and reduced precautionary savings motives, we document that the reform led to a 1.2 percent reduction in non-housing debt. We also document that reductions in out-of-pocket spending can only account for a small fraction of this reduction through reduced consumer debt. We propose two alternative explanations for the reduction in debt, which are consistent with the predictions from the life-cycle model in Hubbard, Skinner, Zeldes (1995). Specifically, we argue that Medicaid assets tests and consumption floors, provided by bankruptcy protection, can explain excessive borrowing in the pre-ACA period. Prior to the expansion, asset tests provided incentives for Medicaid eligible individuals to turn savings into exempted assets, e.g., by using savings as a down-payment for automobile loans, to maintain eligibility. A feature of the Medicaid expansion is that it eliminated remaining asset tests in adopting states, which may have reduced welfare-relevant distortions in household borrowing. Consistent with this prediction, we document that the reform’s negative effect on non-housing debt was twice as large in states with pre-existing Medicaid asset tests. Turning to the interaction of the Medicaid expansion and the state’s generosity of bankruptcy protection, we show theoretically that the consumption floor provided by bankruptcy protection provides an incentive for excessive welfare-reducing borrowing in the presence of financial risk. Consistent with this prediction, we find that the financial risk protection, provided by the Medicaid expansion, led to larger reductions in borrowing and bankruptcy filing in states with more generous homestead policies. Finally, we decompose the relative contribution of each channel. We conclude that at least 65 percent of the reform induced reduction in non-housing debt can be explained by these two channels.

The Trade-off between Extensive and Intensive Margin Adverse Selection in Competitive Health Insurance Markets

Timothy Layton
,
Harvard University
Michael Geruso
,
University of Texas-Austin
Mark Shepard
,
Harvard University

Abstract

Adverse selection is a persistent problem in health insurance markets. In many markets, selection can occur on both the intensive margin (more vs. less generous coverage) or the extensive margin (insurance vs. uninsurance). However, modern sufficient statistics approaches to welfare analysis of adverse selection are typically only designed to capture one margin or the other. This has led to important tradeoffs between selection on the intensive and extensive margins being overlooked. In this paper, we develop a new approach to welfare analysis when consumers make both intensive and extensive margin insurance choices. We show that the welfare consequences of adverse selection and of policies intended to combat selection problems can be evaluated using a simple set of sufficient statistics that can be easily recovered given exogenous variation in plan prices. We describe our general model using a series of figures that provide intuition for the tradeoff between intensive and extensive margin selection. We also present a graphical “reaction function” approach for finding equilibrium prices and quantities. We then present an application of our method to the Massachusetts health insurance exchange, the Connector, where we provide evidence of selection on both the extensive margin and the intensive margin (between a low generosity option and a group of higher generosity plans). We use this setting to illustrate potentially counterintuitive consequences of selection-related policies. First, we show that while benefit regulation (the elimination of a pure cream-skimming plan) can efficiently lead to more consumers choosing the high generosity option, it can also induce some consumers to inefficiently exit the market and become uninsured. Second, we show that while increasingly large penalties for remaining uninsured can efficiently cause some consumers to choose to purchase insurance, they can also inefficiently cause some consumers to switch from the high generosity option to the low generosity option.

Does the Individual Mandate Affect Insurance Coverage? Regression Kink Evidence from the Population of Tax Returns

Daniel Sacks
,
Indiana University
Ithai Lurie
,
U.S. Treasury Department
Bradley Heim
,
Indiana University

Abstract

The ACA’s individual mandate, a tax penalty for failing to obtain health insurance, is a controversial and recently repealed policy intended to encourage insurance take up and reduce adverse selection. There is little direct evidence, however, on whether the mandate penalty affects take up. We estimate the effect of the mandate penalty on insurance coverage using a Regression Kink Design, taking advantage of the fact that the mandate penalty is a kinked function of income. Using tax return data, we study the population of single, childless tax filers, without offers of employer sponsored insurance, with income near the 2015 or 2016 mandate kink point. We find visually clear evidence that coverage responds to the mandate penalty. At lower incomes, the individual mandate has a large coverage effect, concentrated in public coverage; at higher incomes, it has a smaller coverage effect, concentrated in the individual insurance market. Young people, men, and people without disability income or high prior medical are all especially responsive to the mandate, suggesting it may help reduce adverse selection. Extrapolating out of sample, our estimates suggest that around four million people would drop coverage as a direct result of eliminating the mandate
Discussant(s)
Robert Kaestner
,
University of Chicago
Ashley Swanson
,
University of Pennsylvania
Leemore Dafny
,
Harvard University
JEL Classifications
  • I0 - General
  • I1 - Health