Thursday, March 14, 2013

ACA Forecasts Have Not Yet Been Grounded in Microeconomics

The Congressional Budget Office, Jonathan Gruber and others attempting to forecast the effect of the Affordable Care Act (ACA) on the propensity of employers to offer health insurance have gotten the microeconomics wrong.

Background: Beginning in 2014, employers who offer affordable health insurance will thereby render their employees ineligible for health insurance tax credits that can be large as $15,000 per family per year. All analysts agree that there are SOME employers who will react to this situation by dropping their coverage, and that their employees will benefit by obtaining the subsidies. The debate is about the size of this effect and whether it would large enough to offset other factors that might be encouraging employers to offer coverage.

In one way or another, the answer to the question is ultimately found through empirical analysis. One could wait until say, 2015, and measure what happened. For those of us who want a forecast before then, we must somehow relate historical episodes to what the ACA will do in 2014.

The approach of CBO, Professor Gruber (see 27:02 in this video), and others has been to (a) think of a "demand" for employer-sponsored insurance (hereafter, ESI) and (b) look at the historical sensitivity of that demand to the price of ESI, especially variation associated with the ESI subsidy implicit in the exclusion of ESI premiums from payroll taxes and employee income taxes. Item (b) is acceptable enough -- I agree that subsidies impact prices -- but item (a) is fundamentally flawed because the wrong demand curve has been identified.

Historically, there has not been a viable non-group insurance market, so that employers dropping their coverage are in effect asking a significant fraction of their employees to go uninsured or to apply for Medicaid. The demand curves traced out by such episodes are telling us about the distribution of employee preferences for being uninsured (or on Medicaid) and the distribution of ESI administration costs (broadly defined to include insurance loadings and other factors). Economic theory does not tell us the precise shape of these distributions, so it's nice to have examined the historical episodes, which suggest that the elasticity of the propensity to offer ESI with respect to the price of ESI is roughly -0.5. In other words, historical increases in ESI prices in the amount of 10% have caused roughly 5% of employers to drop coverage.

But, under the ACA, dropping ESI does not mean leaving the employees uninsured. The propensity of employers to drop ESI under the ACA therefore has little to do with the distribution of employee preferences for being uninsured or for participating in Medicaid. Thus, to a first approximation, the -0.5 elasticity cited above is irrelevant. (More precisely, the magnitude of the historical elasticity is probably a conservative lower bound on the magnitude of the elasticity relevant for ACA forecasts, because going uninsured is a feasible but unlikely choice for employees who lose ESI).

What we really need to know is the distribution of employee preferences to participate in the ACA's "exchange" plans, and the distribution of ESI administration costs as compared to exchange administration costs (again, broadly interpreted to include insurance loadings, etc.). Health economists have not studied that yet.

You might think that the distribution of ESI administration costs would be relevant for the ESI-exchange margin, but the exchanges will have administrative costs too. The application for exchange plans is 21 pages long: employers who drop ESI may well replace it by helping their employees with application and other administrative tasks, much like employers help employees with immigration paperwork. From this perspective, ESI and exchange participation look like very close substitutes and the 0.5 price elasticity magnitude looks like a wild underestimate.

Although the exchange plans will not be called "Medicaid," you might think that the distribution of preferences for Medicaid participation could be important because people will attach some of the same stigma to exchange participation as they do to Medicaid. I would agree with you if the purpose was to quantify the effect of Massachusetts' health reform on ESI coverage, because premium support was made available in Massachusetts primarily through its "Commonwealth Care" program which was a collection of 4 Medicaid managed plans (one plan has been added since). In contrast, recipients of federal ACA subsidies will be receiving cash they can spend on a plan of their choice, one or two of which will be the plans in which their state's U.S. Senators are enrolled: that’s a lot closer substitute for ESI than Medicaid is.

Because they have helped uncover distributions of administration costs and preferences for being uninsured, the historical studies are better suited to predict the number of people who will change from uninsured to insured as a consequence of the ACA, as RAND has done. But that's very different from predicting how many people move from ESI to non-group policies. Even without considering labor-market equilibrium effects or general equilibrium effects of the ACA on ESI coverage, we can already see that demand analysis has been misapplied in ACA forecasting and that the propensity of the ACA to reduce ESI coverage has been underestimated.

33 comments:

muzammal khan said...

through scientific research. One could delay until say, 2015, and evaluate what occurred.bubblegum casting

Yasir Khalid said...
This comment has been removed by the author.
Yasir Khalid said...

I also hope to keep a record of my learning curve here on my env3d blog, so check back to keep up to date on my progress. is bubblegum casting legitimate

Yasir Khalid said...

Unemployment rates got quite high in Pittsburgh in those days, reaching 16 percent at one point, and staying over 10 percent for two and a half years. The chart below summarizes their findings for Pittsburgh. web design manchester

Yasir Khalid said...

The chart displays the fraction of persons (in Pittsburgh) receiving unemployment benefits who began working again, as a function of the number of weeks until their unemployment benefits were scheduled to be exhausted. grubhub coupon codes

Yasir Khalid said...

The chart displays the fraction of persons (in Pittsburgh) receiving unemployment benefits who began working again, as a function of the number of weeks until their unemployment benefits were scheduled to be exhausted. Nike

Yasir Khalid said...

Hey – great blog, just looking around some blogs, seems a really nice platform you are using. I’m currently using WordPress for a few of my blogs but looking to change one of them over to a platform similar to yours as a trial run. Anything in particular you would recommend about it. e cigs

Yasir Khalid said...

Creando así las bases de un verdadero conversatorio. El 25 de agosto de 2010 es la fecha límite. parkour shoes walking dead season 4 spoilers Whole house Water Filtration Systems. home flooring

muzammal khan said...

Reputation of sometimes position, soccer watching … Defending attention is something he must execute on, along with always operating out to his recognize and not based upon absolutely on length, athleticism to process. iphone porn

muzammal khan said...

The assessment pretty much tells you about the different dimension your activities design, which are significant. dentist round rock tx

Yasir Khalid said...

He used the cash from his work from house company to pay for the provides he required to fix the various oral problems that came to his workplace. Click Here

Yasir Khalid said...

It's a little less ambitious than my other project, but I intend on working more on whatever comes my way this semester. article

Yasir Khalid said...

I did not know that Serlkay had ever expanded its size. I must say that a succesful family owned business in this day and age is a very refreshing sight. as Igor Cornelsen said

salman khan said...

Protecting attention is something he must perform on, along with always working out to his identify and not based upon absolutely on length, athleticism to process. http://cheapestflights.to/

muzammal khan said...

But there is another part of attention that not only can comprehend it, but already knows about it. There is a saying in the Zen personalized, “Birth and. shemale cam

salman khan said...

Remain at the innovative of new technological innovation – create sure you have academic classes and participants presenting believes like geothermal energy, biomass heat energy, etc. Twitter

salman khan said...

So, with all these electronic interaction improvements, are company exhibitions and other face-to-face conferences still necessary? According to the a large variety of HVACR professionals that be present at the various market conferences every season, it would seem so. stumbleupon

salman khan said...

The Buddhist way to all of this is quite genuine, really. Buddhism understands of that from the perspective of ego the opportunities of lack of way of life is generally difficult. The ego cannot think about being deceased. Agen Togel Online

salman khan said...

Again I turn to Woodsy Allen’s exciting and mordant humorousness as introducing the topic. He says, “I don’t concepts the considered of lack of way of life. continue reading this..

salman khan said...

As almost everyone’s costs knowledgeable, many companies had to cut back on their display participation and the wide range of people they sent to be current at actions was considerably reduced. carpet cleaning rowlett

salman khan said...

Even though water program is not a gorgeous job, there is a lot of compensate to it. watch tv online for free

salman khan said...

Thieves hit a day care, burning copper cables from the air conditioner equipment and taking the copper pipe joints. Custom Christmas stockings

Yasir Khalid said...

3,000 runners participated in the eleventh edition of this sporting event to stand up to infection and raise public awareness about early detection. http://moviesfreedom.com/

Yasir Khalid said...

Runners participated in the eleventh edition of this sporting event to stand up to infection and raise public awareness. http://www.thirdway.co/

Yasir Khalid said...

Eunners participated in the eleventh edition of this sporting event to stand up to infection and raise public awareness fashion. http://parkofficeltd.co.uk/

Yasir Khalid said...

Indian, is developing a worldwide copper business, and copper criminals are taking advantage of this requirement and the causing price improve by taking and promoting the steel for great earnings to website pages across the U.S. particularly fond of

Yasir Khalid said...

However, there are restricted sources available to implement these rules, and a very portion of criminals are caught and charged. Furthermore, as copper robberies are generally resolved as transgressions, those people charged pay relatively low charges and provide brief jail conditions. regarding his latest posts

salman khan said...

One nice factor about being the first company to buy the vehicles is that Robichaud is fairly much engaged in any style changes that may be created to your vehicle. eventbrite.com

Yasir Khalid said...

That’s why we’re campaigning to take back the technology, to make it a platform for empowerment,’ said Dumiao. https://www.facebook.com/darius.anderson.98

Yasir Khalid said...

Representatives from LGBT activist organizations GANDA Filippinas and Rainbow Rights participated in the run. www.instagram.com

Yasir Khalid said...

Hey – great blog, just looking around some blogs, seems a really nice platform you are using. I’m currently using WordPress for a few of my blogs but looking to change one of them over to a platform similar to yours as a trial run. Anything in particular you would recommend about it. park office

kavin paker said...

The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack of will. Phess.ca

kavin paker said...

Runners participated in the eleventh edition of this sporting event to stand up to infection and raise public awareness. Latest android news