Modeling Take-Up in the Nongroup Market: Results from an Updated Health Insurance Simulation Model

Federal policymakers consider a variety of proposals to encourage Americans to have health coverage and are interested in how those proposals would affect insurance coverage and its cost to the federal government. One of the main tools used by the Congressional Budget Office to estimate the cost and coverage effects of such proposals is a newly updated health insurance simulation model (HISIM) based on data from the Current Population Survey (CPS). CBO uses HISIM to estimate the major sources of health insurance coverage and associated premiums for the U.S. resident population under age 65. Those estimates are used, along with other models and tools, to estimate the federal spending, tax revenues, and net federal budgetary effects associated with that coverage to provide a baseline projection for the Congress for a specified ten-year period.

The newly updated HISIM is a structural expected utility model in which individuals and families, or health insurance units (HIUs), choose coverage based on the expected utility they receive from different options. The decisions are probabilistic and maximize utility in a random utility model. The utility of each option is a function of the HIUs’ total income minus health care spending, including premiums, out of pocket spending, subsidies, taxes, and any mandate penalties. CBO imputes a discrete probability distribution of potential health spending to each individual. An advantage of this approach is that out-of-pocket costs can be calculated to compare expected utility under plans with different cost-sharing attributes, and the variance in health spending for a given insurance choice directly affects the expected utility resulting from that choice. Many utility function parameters are estimated with the generalized method of moments such that the predictions from the model are close to the distribution of coverage in the base year of the data. Some parameters are set according to CBO’s assessment of the research literature. The approach allows for more selection into insurance coverage by health status than would a price elasticity based approach.

Results from the newly updated HISIM include estimates of enrollment in the ACA Marketplace and in the nongroup market outside the Marketplace for both historical and future years. Estimates of the uninsured are also presented. Coverage by broad age, income and health groups are also discussed.