1 2006 Blue Book, United States Department of the Treasury, February, 2006.
2 HDHP stands for High Deductible Health Plan. This plan design generally has a substantial deductible and/or coinsurance requirement that must be met before catastrophic health insurance is activated for medical care reimbursement.
3 Stephen T. Parente, Roger Feldman, Jon B. Christianson, and Jean Abraham, Health Savings Accounts: Early Estimations on National Take-up from 2003 MMA and Future Policy Proposals, Final Report on Contract HHSP233200400573P: Analytic Support in Assessing the Impact of Health Savings Accounts on Health Insurance Coverage and Costs, June 7, 2005. Also see Roger Feldman, Stephen T. Parente, Jean Abraham, Jon B. Christianson, and Ruth Taylor, "Health Savings Accounts: Early Evidence of National Take-up from the 2003 Medicare Modernization Act and Future Policy Proposals," Health Affairs, 24:6 (November/December, 2005), pp. 1582-1591.
4 We modeled the tax credit based on the U.S. Department of the Treasury Blue Book published in February, 2004. Specifically, we used $1,000 and $556 tax credits with incomes at $15,000 and $20,000 respectively. No tax credit applied once income was at $30,000. These parameters were used to develop ratios to permit a sliding scale of tax credits with two kinks at $15,001 and $20,001. We also modeled the tax credit applying to dependents (starting at $500) at higher income breaks associated with families.
5 U.S. Treasury Department, General Explanations of the Administration's Fiscal Year 2007 Revenue Proposals ("2006 Blue Book"), February 6, 2006, available for viewing at http://www.treasury.gov/offices/tax-policy.
6 As a sensitivity test we added the average state rate to the tax subsidy, weighted by the number of people living in a state. We did not find any substantial difference in the distribution of the resulting plan choices in the simulation.
7 The proportion of the population for whom the cap on the tax subsidy was binding was very small, less than 5%. At one point we changed the age/income-specific contributions to the HSA just to make sure the cap might affect someone in the simulation.
8 Weiner J, Starfield B, Steinwachs D, and Mumford L. Development and Application of a Population Oriented Measure of Ambulatory Care Case-Mix. Med Care 1991;29:452-472.
9 As part of the calibration, we sought to have our estimated take-up be in the ball-park of the original analysis. However, we did not constrain the model to be exactly the same. As part of several additional sensitivity tests we used our old model with new data and the found the results to be similar. Some new employer data did change the results because of the use of their claims data and their very low use, given their age and gender profile. Tables with previous sensitivity analyses are available upon request.
10 Mark Pauly and Bradley Herring (Pooling Health Insurance Risks, Washington, DC: The AEI Press, 1999) have suggested that individual policies contain some degree of group experience rating and vice versa. According to Pauly and Herring, premiums in the individual market don’t rise one-for-one with predictable expenses, and premiums in the ESI market have a positive association with predicted individual medical expenditures, contrary to the GER hypothesis. Notwithstanding these findings, we decided to use IER and GER as our rating assumptions because these methods are more tractable and because it is not clear how to combine them to form “mixed” ratings systems as suggested by Pauly and Herring.
11 See Mark Pauly, Allison Percy, and Bradley Herring, “Individual Versus Job-Based Health Insurance: Weighing the Pos and Cons,” Health Affairs, 18:6 ((November/December, 1999), pp. 28-44 for data on loading fees in the individual health insurance market.
12 The MEPS uses "establishment size" rather than employer size. The three size classes are fewer than 50 employees, 50-200, and more than 200. We assume the loading factors for these classes are 20%, 15%, and 10% respectively.
13 We used rule (1) - the refundable tax credit equals 15.3 % of the HDHP premium - in all cases because most taxpayers have employment-taxable wages that exceed the HDHP premium.
14 We assume that employees as a group pay for health insurance through lower wages. Consequently, even if the individual's wage does not increase when he/she drops ESI, wages for the group increase and the government collects more income and employment taxes. For empirical evidence that workers bear the full incidence of health insurance benefits, see Jonathan Gruber, "The Incidence of Mandated Maternity Benefits," American Economic Review, 84:3 (June, 1994), pp. 622-641; and Jonathan Gruber and Alan Krueger, "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," in Tax Policy and the Economy, MIT Press for the National Bureau of Economic Research, 1991, pp. 111-143.
15 Estimates of previous premium elasticities are available from our 2005 NBER working paper presentation at the www.ehealthplan.org web site.
16 MEPS follows the unconventional notation of "Mixed" provider organization for PPO, "Exclusive" provider organization for HMO, and "Any" provider organization for conventional open access fee-for-service plan. Relatively few of the latter plans were represented in the data; therefore we did not assign a conventional plan to any worker with an employment-based offer.
17 We converted HMO co-pays to actuarially-equivalent coinsurance rates for predicting the HMO enrollment probability.
18 "Joe" doesn't really exist as a unique person because only high-income taxpayers contribute $3,760 to their HSA and only low-income taxpayers are eligible for a premium tax credit. Our hypothetical example combines several people to illustrate how all the subsidies were calculated.