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

Area of Science:

• Health Economics
• Public Health Policy
• Insurance Market Analysis

Background:

• Understanding low-income individuals' willingness to pay for health insurance is crucial for designing effective subsidized insurance markets.
• Previous research has not fully quantified the gap between willingness to pay and actual insurance costs for this demographic.

Purpose of the Study:

• To estimate the willingness to pay for health insurance among low-income adults in Massachusetts.
• To analyze the implications of these findings for insurance market dynamics and enrollment rates.

Main Methods:

• Utilized administrative data from Massachusetts' subsidized insurance exchange.
• Employed discontinuity analysis of the subsidy schedule to estimate willingness to pay and insurance costs.
• Analyzed the relationship between enrollee premiums and insurance take-up rates.

Main Results:

• Insurance take-up declines sharply as enrollee premiums increase, with a 25% drop for every $40 monthly premium rise.
• Marginal enrollees exhibit lower costs, suggesting adverse selection.
• Enrollees' willingness to pay is consistently less than half of their expected costs.

Conclusions:

• Even with substantial subsidies, insurance take-up among low-income individuals is projected to be incomplete.
• A premium set at 25% of average costs would result in at most 50% enrollment; even a 10% premium leaves 20% uninsured.
• Findings highlight challenges in achieving universal coverage through subsidized insurance markets due to low willingness to pay relative to costs.