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Assessing Health Insurance Affordability: Family Budget vs. Voluntary Enrollment Approaches

This article explores two approaches to assess the affordability of employer-sponsored health insurance: the Family Budget Approach and the Voluntary Enrollment Approach. The Family Budget Approach measures how much families can allocate for medical costs after essential expenses, using data from the Consumer Expenditure Survey. In contrast, the Voluntary Enrollment Approach assumes individuals can afford insurance if they voluntarily enroll when offered by employers. Findings indicate that insurance is largely affordable for families both above and below 300% of the poverty line.

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Assessing Health Insurance Affordability: Family Budget vs. Voluntary Enrollment Approaches

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  1. Evidence on Affordability From Consumer Expenditures and Employee Enrollment in Employer-Sponsored Health Insurance

  2. Two Approaches to Assessing Affordability • Family Budget Approach: measure “room” in family budgets to pay medical costs after paying for other necessities • Voluntary Enrollment Approach: Assume that individuals can afford insurance if they voluntarily choose to enroll when offered by their employer • Both suggest that insurance is largely affordable both above and below 300% of poverty.

  3. Family Budget Approach • Use best source of expenditure data for the U.S.: Consumer Expenditure Survey • Sample of families in Massachusetts • Data on income and consumption expenditures on various categories of goods

  4. Defining Necessities • Categories of “necessities” follows earlier approaches: • Child care • Food • Housing • Taxes • Transportation • Miscellaneous (10% of total)

  5. Defining Necessities • This approach understates affordability • Counts all expenditures in these categories regardless of how “necessary” • By definition assumes that health insurance should be a lower priority than these other “necessities”

  6. Available Resources • Big issue: families spend more than their income • True for most families below 300% of poverty • Some of this is borrowing • But most of it is under/mis-reporting of incomes • So “available resources” are really better measured by expenditures • In other words, question is: how much “room” do families have in their budgets for health care? • I measure the available “room” as what they are spending on non-necessary consumption items

  7. Available Resources • What if individuals are going into debt? • Not obviously a problem – law students should have health insurance even if building up debt • For others, it can be … so subtract debt holdings from available resources • That is, “room” to pay premiums is expenditures on non-necessities minus debt

  8. Available Resources • Example: Janet • Reported income of $20,000 • Expenditures of $25,000 • No reported debt • Expenditures on necessities of $20,000 • So her available resources are $25,000 • And her “room” to pay premiums is $5000

  9. Available Resources • Example: Joe • Reported income of $20,000 • Expenditures of $25,000 • Debt of $5000 • Expenditures on necessities of $20,000 • So his available resources are $20,000 • And his “room” to pay premiums is $0

  10. Out of Pocket Spending • Another issue: what about out of pocket spending / deductibles? • Not clear whether we should account for these in considering affordability • Individuals face even more out of pocket costs without insurance than with insurance • For individuals who are sick, it is lack of insurance that is unaffordable • Strange to say that illness makes insurance unaffordable!

  11. Out of Pocket Spending • At the same time, we are asking folks to pay both premiums and considerable OOP costs (if in MCC plan) • So choose middle ground: consider typical OOP costs for uninsured person under each plan • Can’t use typical costs for insured person – that would build in bias towards excess care once insured

  12. Enrollment Based Approach • Alternative: Individuals can afford insurance if they buy it voluntarily • A natural laboratory for looking at this question: the workplace • In fact, very few individuals offered insurance at the workplace turn it down to become uninsured • Suggests that for most, employer-provided insurance is affordable

  13. Enrollment by Premium Level • Enrollment high on average – but does it fall as employer premiums rise? • Use data on average enrollment by single/family premiums from Kaiser Family Foundation survey • Find that enrollment remains high even at very high premium levels

  14. Enrollment Among Low Wage Workers • We are particularly concerned about affordability for low income families – less than or near 300% of poverty • Kaiser data – enrollment at firms where 35% of worker earn $20,000 or less • Still get high enrollment even at premiums of $200/month or more

  15. Enrollment Among Very Low Wage Workers • Massachusetts-specific survey • Smaller sample sizes, but know more about wage distribution • Even among firms where 90% of workers earn less than $30,000, two-thirds enroll • Despite typical cost per worker of $100 per month • Insurance clearly affordable for workers in this range

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