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Increasing Health Insurance Premiums and the Decline in Insurance Coverage

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Increasing Health Insurance Premiums and the Decline in Insurance Coverage Powered By Docstoc
					 Explanations for the Decline in
  Health Insurance Coverage

          Michael Chernew, Michigan and NBER
             David Cutler, Harvard and NBER
                Patricia Keenan, Harvard




This work was funded by the Economic Research Initiative
on the Uninsured, the National Institutes on Aging, and the
Alfred P. Sloan Foundation.
     Research Questions
• What impact will rising premiums have
  on coverage in the future?



• What role did rising premiums for health
  insurance play in declining coverage
  rates over the 1990s?
              Basic Fact
• Despite strong economic growth, and
  expanding public coverage, the rate of
  health insurance coverage fell during the
  1990s.
   – 13.7% of non-elderly uninsured (1987)
   – 15.8% of non-elderly uninsured (2000)
          Reasons for Decline
• Demographic or labor market changes
• Changing value of alternatives (charity care)
• Equilibrium unraveling
   – Increase in working spouses
• Regulatory changes
• Changing Load
   – Taxes
• Rising premiums
   – 1% increase in premium  drop of 300,000
     (Lewin)
 ‘Load’ as a Measure of Price
• Textbook models:
   – ‘Price’ is the load (difference between premium
     and expected payout)
   – Rising premiums
       • Have no ‘price’ effect
       • May lead to greater coverage if correspond to
         greater risk
• Most elasticity estimates are ‘load’ or ‘co-premium
  based’
  Why Premiums May Matter
• Higher premiums may include greater moral
  hazard cost
   – Contracting imperfect
• Higher premiums may increase incentives for
  low risk to opt out and market to unravel
• Higher premiums may increase relative
  appeal of charity care
   – Particularly if better technology (which
     drives up premiums) is also partially
     available via charity care
                 Approach
Relate decline in coverage between 1988-
1990 and 1998-2000 to increases in
premiums
− Probit model using individual level data

• Control for:
                          – State insurance
   – Individual traits      regulation
   – Taxes
                          – MSA unemployment
   – Working spouses
                          – MSA demographics
   – Medicaid
     expansion            – Managed care enrollment
   – Immigration
                      Market Data
Health Care Costs   Premiums
                        Employer Survey (KPMG 1988, 1989, 1998;
                        KFF/HRET 1999)
                        Hedonic price regression yields MSA estimates
                    Medicare Part B expenses (CMS)
                    State health care spending (CMS)

Taxes               NBER TAXSIM program: Gruber Method
Regulations         Rate reform/guaranteed issue: Kosali Simon
Medicaid            NGA and Reagan Baughman: Similar to
Coverage            Cutler/Gruber Method
Immigrants          1990 Census (ARF) and March CPS
Managed Care        InterStudy and Loren Baker
Charity Care        AHA: 1990 beds in public or teaching hospitals per
                    capita
% working           March CPS
spouses
              Individual Data
• Insurance Coverage
• Demographics and employment characteristics
  for individuals and family head
       – Time interactions
• Income deciles (Gruber approach)
   – Income deciles interacted with marital status of
     family head
   – Income deciles interacted with marital status
     and time
• Child age dummies, mean medical care spending
  by child age (Cutler /Gruber 1996).
                                      Base Results
                                    Any Cov.           Private              Public
private premiums (1000s)            -0.0267 ***          -0.0390      ***     -0.0040

marginal tax rate                    0.3535 **           -0.0603               0.2240

insurance reforms                    0.0103               0.0131              0.00007

% working women                     -0.1093 *            -0.2601 ***           0.1549 ***

unemployment rate                    0.0108              -0.2004               0.1210

% foreign born                       0.0341              -0.2038               0.1680 *

Medicaid eligibility                 0.2211 ***          -0.0601 ***           0.2689 ***

charity care availability              -4.04                -8.23 *               3.58

Effect of $645 spending             -0.0172              -0.0252              -0.0026




Controls for individual level traits and MSA demographics included but not displayed.
   Endogeneity and Attenuation
              bias
• Noise in premium measure
• Uninsured may cause rising costs
   – Selection effects
   – Cost shifting
• Instrument with Medicare and State per capita costs
   – F-stat: 52.66
   – Partial R-squared: .75
                                  Base Results - IV
                                     Any Cov.          Any Cov.               Any Cov.
                                     Probit              LPM                   LPM - IV
private premiums (1000s)              -0.0267 ***          -0.0234      ***      -0.0305 *

tax price                              0.3535 **            0.0866                0.0857

insurance reforms                      0.0103               0.0078                0.0078

% working women                       -0.1093 *            -0.0357               -0.0434

unemployment rate                      0.0108              -0.0409               -0.0604

% foreign born                         0.0341              -0.0297               -0.0476

Medicaid eligibility                   0.2211 ***           0.2661 ***            0.2663 ***

charity care availability                -4.04                -5.61 *              -4.34

Effect of $645 spending               -0.0172              -0.0151               -0.0197


Instruments for private premiums are Medicare Part B and state nonelderly medical spending.
Controls for individual level traits and MSA demographics included but not displayed.
               Premium Results by Subgroup
                                     Any Cov.      Private           Public
Base                                 -0.0267 ***     -0.0390   ***    -0.0040

SAMPLE:
 Age 18 - 25                         -0.0519 ***     -0.0674 ***      -0.0046

 Age 50 - 64                         -0.0100         -0.0169           0.0045

 Income < 30K                        -0.0595 ***     -0.0625 ***      -0.0041

 Income > 30K                        -0.0105 **      -0.0144 **       -0.0022

 < = High School                     -0.0357 ***     -0.0510 ***      -0.0079

 > High School                       -0.0153 ***     -0.0212 ***       0.0002




Controls for all covariates in base model.
              Interpretation
• 1% increase in premiums leads to 150,000 more
  uninsured
   – Half of Lewin effect
• 1% cost growth above GDP leads to 1.8M more
  uninsured
• 2% cost growth above GDP leads to 3.8M more
  uninsured
• Mean premium increase ($645) accounts for:
   – 1.7 percentage points decline in coverage
   – ~54% of mean decline
• Effects greatest for young and low income
              Conclusions
• Health care cost increases are related to drop in
  coverage.

• It is reasonable to assume that coverage rates
  will continue the long-term decline.
   – Subsidy and pro-competition strategies may
      be short term fixes

• Suggests a fundamental challenge to policy
  makers
   – Individuals desire access to new medical
     technologies
   – Costs of coverage may become increasingly
     less affordable
       Explaining Tax Results
• Results are not robust to specification changes
• Very little variation in taxes rates over time
   – Fixed effects absorb much of this variation
   – Counter-intuitive results likely noise
• We don’t focus on groups most likely to be affected
   – Private coverage
   – Workers
• Workers own employment-based coverage results are
  consistent with literature
 Sensitivity of ‘Any Coverage’ to Cost Measure
                                  Private              Medicare
                                  premiums             Pt. B
   private premiums (1000s)         -0.0267 ***

   Medicare Part B (1000s)                              -0.0162 **

   marginal tax rate                 0.3535 **           0.2816 *

   insurance reforms                 0.0103              0.0133 *

   % working women                  -0.1093 *           -0.0898 **

   unemployment rate                 0.0108              0.0257

   % foreign born                    0.0341              0.0182

   Medicaid eligibility              0.2211 ***          0.2120 ***

   charity care availability           -4.04              -2.58

   Effect of $645 spending          -0.0172             -0.0104
   Number of MSAs                        64                 124

Controls for individual level traits and MSA demographics included but not displayed.
             Other findings
• Medicaid expansions increase coverage 1
  percentage point
• Some variables reduce private, but not public,
  coverage
   – Working women
   – Premiums
• Demographic forces offset
   – Income vs. other demographics
   Focus on ‘Any Coverage’
• Advantage
  – Broadest measure of coverage trends
• Disadvantage
  – Effects may differ in sub-markets
     • Private
        – Workers
        – Own ESI
     • Public
                      Model
• Coverage i,m,t =

      X i,m,t Bt + Zm,t l + d m+ qt + e i,m,t

• Standard errors assume clustering by
  MSA*time

				
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