Administrative lubrication or expanded subsidies — inframarginal spending considerations

The ACA individual insurance markets is a highly subsidized insurance market where there are millions of individuals who are eligible for insurance that will cost under $25 but who have not purchased insurance.

What can be done to get more people to buy insurance?

There are two basic routes that can be taken.  The first is to use non-cash means to reduce friction points to make enrollment easier.  The second is to increase the subsidization of insurance so that the plans get even cheaper.  These approaches can be complements to each other.  The Biden Administration is increasing the amount of lubrication being used through extended special enrollment periods that ends on August 15th, increased advertising that lowers information and awareness costs, and increased funding to navigators to reduce complexity costs.  At the same time, the passage of the American Rescue Plan dramatically increased the value of subsidies for most potential buyers.

One of the considerations from a policy point of view is how much of a benefit does the marginal enrollee get and how much of a benefit does the non-marginal (inframarginal) enrollee get?  The marginal enrollee is the person who is literally flipping a coin to get insured or not get insured.  Individuals who would have bought insurance when it was $300/month more expensive and required singing God Save the Queen in Klingon while dancing in heels backwards down a spiral staircase are not marginal buyers.  They won’t complain about an easier process or cheaper insurance, but an easier process and cheaper insurance won’t change their decision to buy insurance.

Silverloading and the American Rescue Plan subsidy boosts sprayed a massive amount of money at both marginal buyers and inframarginal buyers.  Plenty of people who would have been happy buying insurance at the old premiums received cheaper premiums.  Some people who had not bought insurance because it was too expensive decided that the better deal from Silverloading or the ARP made buying insurance worthwhile.  But a dollar of extra subsidy is mostly going to folks who already would have bought insurance.  Some of that dollar might see people who bought high deductible plans choose to now buy a medium deductible plan but the decision to buy/not buy is not being influenced by an extra dollar of subsidies for lots of the people who benefit from the subsidy.

Reducing administrative burden on applying, activating and keeping a plan also splits the benefits between new, marginal buyers and current buyers.  Targeted improvements in the application process such as allowing for a “fix it” period to help people who had selected a plan but failed to set up a payment account would only benefit individuals who are truly falling through the cracks of the process.  Processes that harvest state level administrative data like tax data will most likely mostly lead to marginal enrollees to be enrolled although some folks who were targeted in these schemes would have bought insurance anyways.

Right now, I think that there is likely more to gain for each dollar of additional effort through reducing administrative burden rather than increasing subsidies.  But this is an empirical question whose answer will change given the situation.