Are Previously Uninsured Exchange Enrollees Paying Premiums for Otherwise Free Care?

In this paper we explore the reasons for low exchange participation by simulating the range of medical expenditure scenarios that each previously uninsured exchange enrollee would face with and without coverage. We estimate the average enrollee’s likelihood of exceeding the deductible, of receiving transfers from the insurance pool, and of avoiding medical bankruptcy. We compare the distributions of claims benefits with exchange coverage and out-of-pocket OOP spending with no coverage.

We pool a sample of nonelderly adults from the 2007 through 2012 Medical Expenditure Panel Survey with employer-based private insurance or no insurance for the full year. We fit total medical expenditures to a three-parameter gamma distribution using health and demographic indicators, and an insurance indicator for each parameter. We select only full year uninsured adults and project a probability distribution of medical expenditures for each individual, then apply the estimated private insurance coefficient to simulate the range of medical expenditure scenarios each individual would face with exchange coverage.

We assume individuals would pay no more OOP than the household’s financial cost of bankruptcy. State of residence and household seizable assets are simulated using the 2007-2011 Panel Study of Income Dynamics. Our enrollment simulation predicts 20% enrollment in the sample. We assume that private insurance beneficiaries enroll in the second lowest cost silver plan in his or her state of residence.

We find that on average the previously uninsured exchange enrollee will exceed the plan’s deductible in 47% of medical expenditure scenarios. In 15% of scenarios the average enrollee receives insurance payments that exceed the premium, corresponding to a net transfer from the insurance pool. On average enrollment reduces the likelihood of medical bankruptcy by six percentage points.

Enrollees with incomes below 250% FPL have a 55% chance of exceeding their deductible on average; these individuals receive deductible subsidies. The average chronically ill enrollee realizes a seventeen-percentage point reduction in the likelihood of medical bankruptcy, and receives a net transfer in 40% of scenarios, as compared to 6% of scenarios for their healthier counterparts.

Paid claims with private insurance are more heavily concentrated in catastrophic scenarios than are out-of-pocket expenditures without insurance. In less catastrophic scenarios consumers spend roughly the same amount OOP without insurance as would be paid on their behalf with insurance. However, in unlikely catastrophic scenarios, paid claims with insurance are much higher than OOP spending without insurance. In the one percent most catastrophic scenarios, consumers receive $1,926 in claims, compared to out of pocket spending without insurance that would be a fraction of that amount ($684).

Our findings suggest that exchange benefits are concentrated in unlikely catastrophic scenarios. Out of pocket spending without insurance would be truncated in these scenarios by the benefits of bankruptcy and charity care. Overlap between these benefits may contribute to low participation in and satisfaction with private insurance purchased from the exchanges: the newly privately insured may be paying a premium for benefits they would have received for free if they had remained uninsured.