How are Consumers Responding to the ACA Marketplaces?

Paper Session

Friday, Jan. 6, 2017 2:30 PM – 4:30 PM

Hyatt Regency Chicago, Plaza A
Hosted By: Health Economics Research Organization
  • Chair: Jonathan Gruber, Massachusetts Institute of Technology

Income Responses to the ACA Premium Tax Credit Notch: Evidence Using Tax Data

Bradley T. Heim
,
Indiana University
Ithai Lurie
,
U.S. Department of the Treasury
Adam Isen
,
U.S. Department of the Treasury
Shanthi Ramnath
,
U.S. Department of the Treasury

Abstract

The effect of the Affordable Care Act (ACA) on economic behavior has been the subject of much public debate. This paper examines the extent to which taxpayers responded to the marginal income incentives implicit in the Premium Tax Credit subsidy schedule of the ACA for taxpayers who purchase health insurance through the government Marketplaces. Because these sizable subsidies fall to zero when modified adjusted gross income is 400% of the Federal Poverty Level (FPL), a notch is generated for some taxpayers. Using data from tax returns filed in 2013-2014, we find clear evidence of bunching at 400% of FPL, albeit some taxpayers remain in strictly dominated regions on the other side of the notch. The observed bunching suggests an income elasticity of 0.5, but the modest amount of overall bunching and larger implied elasticities for those who were eligible for larger subsidies, used paid tax-preparers, and received an advance on their subsidy are consistent with large adjustment costs. We further find some evidence that the responses are driven by avoidance through both deductions and labor supply.

Information Frictions in Health Insurance Marketplaces: Evidence from a Randomized Field Experiment

Adam Sacarny
,
Columbia University
Keith Marzilli Ericson
,
Boston University
Jon Kingsdale
,
Boston University
Timothy Layton
,
Harvard University

Abstract

The Affordable Care Act dramatically expanded the use of regulated marketplaces in health insurance, but information frictions can hamper consumer decision-making in these environments. We conducted a randomized intervention to encourage Affordable Care Act marketplace consumers to shop for plans. We tested the effect of personalized letters and e-mails about the potential savings from switching plans as well as similar, generic messages. The personalized and generic messages both increased website use by 23%; we detect no effects on plan switching. These findings show that simple “nudges” with even generic information can promote shopping in health insurance marketplaces. However, they also leave the impact of the messages on welfare ambiguous, adding to a growing set of nominally effective behavioral interventions with questionable results for downstream outcomes.

Are Low-Income Individuals Aware of and Responsive to Cost-Sharing Subsidies in the Affordable Care Act’s Health Insurance Marketplaces?

Thomas DeLeire
,
Georgetown University
Andre Chappel
,
U.S. Department of Health and Human Services
Ken Finegold
,
U.S. Department of Health and Human Services
Emily Gee
,
U.S. Department of Health and Human Services

Abstract

The 2010 Affordable Care Act (ACA) created Health Insurance Marketplaces that offer affordable health insurance plans. The ACA helps make these plans affordable for low-income consumers by providing both premium subsidies and cost-sharing reductions. Determining whether consumers understand and value cost-sharing subsidies for Marketplace coverage is extremely important. There is major policy concern that individuals who are new to the insurance market lack the financial literacy to successfully navigate the ACA’s complicated provisions and perhaps are erroneously forgoing the subsidies that would otherwise make the purchase of insurance affordable and sensible. Moreover, if the ACA is to enroll a sufficient number of eligible low-income individuals so as to both remain viable and to continue to make a significant improvement in rates of insurance coverage, it is necessary that consumers be aware of the value of subsidies that limit cost-sharing in Marketplace coverage. We use administrative data on the over 19 million health insurance plan choices of individuals who purchased their a health insurance plan in either 2014 or 2015 through the Federal Marketplace in order to assess whether Marketplace consumers behave in a manner than suggests that they are aware of the availability of cost-sharing subsidies. We do this by taking advantage of discontinuous changes in the cost-sharing subsidy schedule and by implementing a sharp regression discontinuity (RD) design. Further, we use the results of this analysis to calculate the price elasticity of demand for the generosity of insurance. We also present evidence on whether consumers are mistakenly forgoing cost-sharing subsidies when selecting plans. Finally, we determine the extent to which the availability of cost-sharing subsidies “crowds-out” the voluntary purchase of more generous plans versus “crowding-in” consumers who would have purchased less generous plans. The results of our RD analysis show that consumers are highly sensitive to the availability of
Discussant(s)
Mark Duggan
,
Stanford University
Kate Bundorf
,
Stanford University
Daniel Sacks
,
Indiana University
JEL Classifications
  • I1 - Health