Healthcare and Household Finance
Sunday, Jan. 6, 2019 1:00 PM - 3:00 PM
- Chair: Keith Marzilli Ericson, Boston University
Liquidity Constraints and the Value of Insurance
AbstractIn the standard model of insurance, individuals maximize expected utility of wealth over some period (e.g. a year). However, individuals face shocks that arise unpredictably within the time period of an insurance contract and care variability of consumption over time (e.g. monthly consumption). We show that a consumption-utility model delivers new insights about the value of insurance. Borrowing costs and liquidity constraints have large impacts on the value of insurance. We show that consumption-utility model can explain a series of puzzles of insurance. For instance, when premiums are paid smoothly each month, an individual’s willingness-to-pay for lowering the deductible can lead to choices that are dominated from the end-of-the-year wealth perspective. Alternatively, when premiums are due upfront, willingness-to-pay for insurance can be below its expected value, even though individuals are risk averse. We show that inferring risk preferences from behavior under the assumption of the expected utility of wealth model will lead to poor out-of-sample predictions if individuals face liquidity constraints. Using medical claims data disaggregated to the monthly level, we show how liquidity constraints affect the value of the Affordable Care Act’s cost-sharing reductions (CSRs) for Marketplace enrollees. We then show that liquidity constraints alter the optimal insurance contract design. In the expected utility of wealth model, a classic result is that for a given actuarial value, an individual will prefer a deductible contract with no cost-sharing thereafter. However, with liquidity constraints, an individual can prefer a lower deductible plus coinsurance cost-sharing above the deductible because it smooths risk across months within the year. Finally, we conduct a survey of an approximately representative U.S. sample, and find that proxies for liquidity constraints are associated with higher demand for insurance.
Health Insurance and Housing Stability: The Effect of Medicaid Expansion on Evictions
AbstractEvictions occur when a dispute between a tenant and a landlord results in the tenant being removed from their home. The phenomenon is under-studied, and it is unclear what factors cause tenants to face eviction. One possibility is that out-of-pocket medical costs may drive some evictions and so, in that case, expansions of public health insurance coverage would reduce the number of evictions. To test that hypothesis, we study California's early expansion of Medicaid under the Affordable Care Act. We run standard difference-in-difference regressions and also employ a synthetic-control approach in order to estimate the number of evictions California counties would have experienced in the absence of the Medicaid expansion. The results suggest a statistically significant reduction in evictions after Medicaid expansion.
The ACA Medicaid Expansion in Michigan and Financial Health
AbstractMedicaid coverage is expected to relieve financial hardships associated with seeking and using medical care. This project evaluates the impact of the Michigan ACA Medicaid expansion, which resulted in the creation of the Healthy Michigan Plan (HMP), on the financial well-being of enrollees. We use a difference-in-differences approach that compares changes in financial outcomes among HMP enrollees prior to the expansion (July 2011- January 2014) and after the expansion (July 2014- January 2016) relative to individuals in low-income zip codes in states that did not adopt the ACA Medicaid expansions. The sample consisted of 282,150 HMP enrollees and 830,181 individuals living in low-income zip codes in non-expansion states. All individuals were linked at the individual-level to their credit reports for a six year period. We also examined the effect of HMP among subgroups based on income level, use of medical services, and presence of a chronic disease during the first 12 months of enrollment. We find that enrollment in HMP was associated with significant and large reductions in the amount of debt sent to a collection agency, the amount of medical debt sent to a collection agency, and the amount of credit market debt 30 days past due or more. Surprisingly, effects were quite consistent across all subgroups, suggesting that the financial benefits of Medicaid enrollment extend to almost all types of enrollees.
- I1 - Health
- D8 - Information, Knowledge, and Uncertainty