Micro Simulation of Individual Welfare Effects of ACA for Previously Uninsured Adults

Objective: To evaluate the net effect of the Affordable Care Act (ACA) for the individual welfare of adults who were uninsured before implementation of the law. The ACA improved individuals’ wellbeing by expanding public coverage and subsidizing and reforming the private individual market. The ACA also penalizes those who remain uninsured and establishes a standard private policy that charges premiums and cost sharing expenses. This paper evaluates the welfare implications of the confluence of ACA coverage provisions for previously uninsured individuals and policy-relevant demographic groups.

Methods: The analytic sample comprises nonelderly, full-year uninsured adults in the 2010-2012 Medical Expenditure Panel Survey. Details on exchange policies are obtained from the Centers for Medicaid and Medicare Services and matched to sample members by age and market area using restricted data. Because exchange data were available only for federally-facilitated marketplaces, individuals in other states were excluded.

The change in individual welfare two years after implementation of the ACA is evaluated as a function of health and non-medical consumption. Post-ACA insurance status is simulated from Medicaid eligibility (adjusted for self-rated health) and survey-based take-up rates by income for exchange insurance.

The short-term change in health-related welfare is the difference in the expected value of medical care consumed by each individual with and without the ACA, with everyone remaining uninsured in the latter scenario. Parameter values for a three-parameter generalized gamma distribution, estimated from a sample of individuals with all three types of insurance, are used to simulate the random distribution of ex-ante medical consumption for each person. The monetized welfare change related to non-medical consumption from the ACA is the difference in the certainty equivalents of expected utility in each policy environment, assuming CARA risk preferences.

Findings: The ACA generates a modest net improvement in the individual welfare of previously uninsured adults on average (+$91). Individuals with incomes below 250% FPL realize an average welfare gain (+$325), one-fifth of whom realize any improvement; on the other hand, individuals with incomes above 250% FPL realize an average welfare loss (-$756). A majority of previously uninsured adults remain uninsured after the ACA (64%); their welfare loss corresponds to the average penalty for being uninsured (-$158). Medicaid beneficiaries realize a substantial average welfare improvement (+$1,308). While the newly privately insured realize an average gain (+$145), just under a quarter (24%) realizes any improvement. The chronically ill realize substantial average gains (+$1,064); the majority without a chronic illness (71%) realize an average loss (-$311).

Conclusions: The ACA improves the individual welfare of some sub-groups of previously uninsured adults, including low-income and chronically ill individuals on average. Medicaid generates unequivocal welfare gains for its beneficiaries. Most of the previously uninsured remain without health insurance, despite the ACA, and many are required by the law to pay a penalty. Private insurance enrollees who receive more income-based subsidies realize welfare gains on average. For a majority of adults who were uninsured before the ACA, the benefits of a standard private plan from an ACA exchange are outweighed by its subsidized cost.