Consumer Response to a National Marketplace for Individual Insurance. National Impact Scenario by Income and State

06/28/2008

Using the person specific estimates from the simulations, we generated an estimate of insurance take-up by those with annual wage income greater than $45,000 and those with less than $45,000 income.  We chose to focus on the national competition scenario (#2) and used the moderate insurance estimate to identify the impact by different income levels.  An income level of $45,000 was chosen to represent an estimated national mean household income.  The income-specific results are shown in Table 6. 

In the individual market, we find the greatest percentage increase in insurance occurring among the population with less than $45,000 income (44%), compared with those with more than $45,000 income (37%).  Interestingly, we find a smaller percentage decrease in the uninsured among lower-income individuals (-19%) than higher-income individuals (-29%).  This difference suggests that premium costs remain too high for lower-income individuals to take-up insurance even after the having the ability to shop in a less regulated state.
In the group market, the response is quite substantial and appears to reduce the number of people who turn down insurance by over two million.  The impact is greatest for those with lower incomes in the group market.

In Table 6 we also show the impact of a combination of a national marketplace and the 2008 State of the Union (SOTU) health insurance proposals.  Specifically, those buying a single coverage contract would get a $7,500 tax deduction and those buying a family contract would get a $15,000 tax deduction.  For the individual market, the combination of these two policies is fairly substantial with a 70% reduction in the uninsured among those earning less than $45,000 a year.  In the group market, nearly everyone opts to take health insurance.

Table 6 Impact of National Market (Scenario 2) and 2008 State of the Union Proposalby Insurance Status and Income

  Status Quo Scenario2
Alabama as default least regulated State
National % National & SOTU 2008 %
Individual Sample Sample Change Sample Change
Uninsured
 < $45 Income
25,299,301 20,379,943 -19% 7,644,207 -70%
Uninsured
 >= $45 Income
3,544,843 2,508,945 -29% 3,119 -100%
Insured < $45 11,109,728 16,029,086 44% 28,764,822 159%
Insured >= $45 2,780,459 3,816,358 37% 6,322,184 127%
Group Market
Uninsured
 < $45 Income
3,084,578 990,974 -68% 18,911 -99%
Uninsured
 >= $45 Income
446,103 39,886 -91% 69 -100%
Insured < $45 47,414,484 49,508,088 4% 50,480,1516% 6%
Insured >= $45 35,248,098 35,654,315 1% 35,694,133 1%
  Within Sample National  
National Market Unins. Change   (8,465,278) (12,043,791)  
National Market & 2008 SOTU Unins. Change   (24,708,520) (35,190,923)  

In Table 6 we also show the impact of a combination of a national marketplace and the 2008 State of the Union (SOTU) health insurance proposals.  Specifically, those buying a single coverage contract would get a $7,500 tax deduction and those buying a family contract would get a $15,000 tax deduction.  For the individual market, the combination of these two policies is fairly substantial with a 70% reduction in the uninsured among those earning less than $45,000 a year.  In the group market, nearly everyone opts to take health insurance.

Another perspective on the impact of a national insurance market is the effect on states.  We expect persons in states with the highest regulatory burden would have the greatest movement to a less regulated state.  In Table 7, we show the range of increased insurance coverage from the state of origin in the status quo situation to a national marketplace scenario.  Percent changes reflect the difference from the combined individual and group markets at status quo to a different scenario.  Highly regulated states such as New Jersey, Massachusetts, and West Virginia have the greatest percent changes. 

We also model the combined impact of a national marketplace and the 2008 SOTU proposal and find similar distributional patterns, but a clearly accelerated movement from states where the insured are domiciled.  In New Jersey, the percent of individuals with insurance increases from 49% to 79% due to the addition of the SOTU proposal.

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