How changes to rating rules under the ACA might affect Medicare spending
Prior to the ACA, about 12 percent of non-elderly uninsured were aged 55 to 64 years old. At these ages, an individual without access to employment-based coverage may face underwriting and high premiums in the individual non-group market, depending on the state. As these older individuals either gain private insurance through the exchanges or enroll in Medicaid under the ACA, there may be downstream consequences on their Medicare spending. Our paper attempts to quantify the difference in expected Medicare spending by prior insurance status and state regulation of the non-group market.
We use data on individuals not receiving SSDI, age 63 or 64 at the time of the 1994-2005 National Health Interview Survey (NHIS) linked to Medicare claims data to identify the difference in Medicare spending at ages 66 and 67 between four groups categorized by their insurance status and the rating rules of the state in which they resided (uninsured/privately insured residing in a state with/without rating regulations). Unlike previous studies, to identify the effect of prior insurance on Medicare spending, we assume that state-level unemployment rate, the fraction of workers eligible to enroll in employment-based insurance, and whether the state has a high risk pool affect the likelihood of being insured prior to age 65 but do not directly affect Medicare spending.
The relationship between Medicare spending and insurance status prior to aging into Medicare is ambiguous because the uninsured may spend more than the insured due to pent up demand for health services or may spend less due to a smaller preference for utilizing health care. McWIlliams et al. (2009) found that, among Medicare beneficiaries, those who were uninsured prior to aging into Medicare had higher spending on average than those who were insured prior to aging into Medicare. Decker et al (2012) performed a sensitivity analysis suggesting McWilliams’ observed higher spending for the previously uninsured is due primarily to choice of reweighting and the inaccurate inclusion of those with SSDI as uninsured.
Even if the average Medicare spending of people with or without insurance prior to age 65 were the same prior to the ACA, the change in the composition of who remains uninsured may affect Medicare spending. Uninsured in states without rating regulations are more likely to be in poor health than those in states with some form of community rating. If, through rating regulations favoring the near-elderly, tax subsidies to purchase, and an individual mandate to obtain coverage, the composition of the uninsured shifts away from those with pent up demand for health care, the effect may be to reduce future Medicare spending.