Adverse Selection and the American Care Act

Adverse Selection and the American Care Act Testing the Implications of the Roberts Opinion Claire LeavittBoston University6 April 2014

THE ACT: Provisions • Individual mandate • “Guaranteed issue”: • Prohibits insurance companies from denying coverage based on preexisting conditions • “Community rating”: • Prohibits insurance companies from setting premiums based on preexisting conditions

THE RULINGSNational Federation of Independent Businesses v. SebeliusJune 2012 • A majority of the Justices agreed that the mandate fell outside Congressional powers under the Commerce & Necessary and Proper Clauses • 5-4 in favor of the mandate’s constitutionality under Article I (Congress’s taxing power)

THE OPINION: Penalty = Tax? • Intent: Mandate’s absence of malicious intent • Scope: IRS granted power to collect “penalty” without punitive action • Size: Proposed penalty is relatively low

THE OPINION: Penalty = Tax? “For most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance….”

THE OPINION: Penalty = Tax? “Individuals making $35,000 a year are expected to owe the IRS about $60 for any month in which they do not have health insurance. Someone with an annual income of $100,000 a year would likely owe about $200. The price of a qualifying insurance policy is projected to be around $400 per month.”

PENALTY VERSUS INSURANCE DECISIONS FOR VARYING INCOMES Source: Thomas Lambert 2013

HYPOTHESES • H1: Individual-level economic/political decisions made via rational, cost-benefit analyses • H2: Strategic model for Supreme Court decision-making

RESEARCH DESIGN • Test of H1 via survey experiment • Qualtrics-designed; distributed via Amazon’s Mturk • $.25 per survey • Participant sample requirements: • Currently living in the US • Uninsured (as of 31 March 2014) • Over age 18 • N=374 (usable, of 2,000 respondents)

RESEARCH DESIGN • Treatment: Financial information (average cost of Bronze Plan premium and penalty) to enable cost-benefit calculation • Control: Brief description of ACA requirements; no financial info Treatments randomly assigned for each of SIX income brackets

Survey Hypotheses • H0: There will be a significant difference btw. the treatment and control groups for income brackets for which Premium > Penalty • Ha: There will be no statistically significant difference btw. the treatment and control groups for all income brackets

Sample Attributes

Difference-of-means across income groups N = 374; -- = p<.10; * = p<.05

Logit estimates of IVs on Purchase Decision N = 374; -- = p<.1; * = p<.05; **=p<.01

Results • No evidence that suggests full financial information (enabling rational cost-benefit calculation) affects purchase decision • No solid evidence of traditionally-defined politicization, suggesting the uninsured may opt out of purchasing coverage for unknown reasons

Thanks for your attention. Claire LeavittBoston University6 April 2014

Adverse Selection and the American Care Act