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You are here: Home / Anderson On Health Insurance / Administrative lubrication or expanded subsidies — inframarginal spending considerations

Administrative lubrication or expanded subsidies — inframarginal spending considerations

by David Anderson|  August 3, 20218:56 am| 3 Comments

This post is in: Anderson On Health Insurance

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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.

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3Comments

  1. 1.

    Another Scott

    August 3, 2021 at 9:57 am

    A sensible experiment would be to simply sign eligible uninsured people up for the benchmark silver (or a random near-benchmark silver) by default as soon as they come in contact with any part of the government or similar. Go to the library/USPS/etc? “Hey, we’ve got a special today – get insurance unless you already have it.” File your taxes, get signed up. Get your car inspected, get signed up. Maybe even tithe at church, get signed up.

    There must come a point when the effort to get people to affirmatively sign up costs more than making them opt-out.

    Yeah, yeah, the politics would be nearly impossible. But that doesn’t mean that the powers-that-be shouldn’t be thinking about ways to do a pilot program or something.

    Thanks.

    Cheers,
    Scott.

  2. 2.

    Parmenides

    August 3, 2021 at 10:58 am

    I’ve spent too much time thinking about problems like this and your posts have done a lot to orient my thinking.  Honestly, the only way I’ve figured is some pretty major changes to a bunch of different programs which just makes them pie in the sky.  (Basically pull the states responsibility for Medicaid completely onto the federal government and then make it the base system where any non-covered person either gets signed up at the beginning of the year or at first contact with the medical system. Also postal banking because everyone should have a checking account.)

    But I can’t figure out nudges or plan designs that involve the end marginal case user paying money unexpectedly as viable.  I’ve lived a cash strapped existence before and unexpected bills are killer.  So signing up people for plans without zeroing out the premium.  But if you do that then someone else who gets the same insurance will be mad that someone is getting something a cheaper price than them.  Also the subsidies need to not cliff.  But you’ve talked about that.

  3. 3.

    Sister Machine Gun of Quiet Harmony

    August 3, 2021 at 2:04 pm

    I just want to say that I rarely comment on your posts, but I have recommended them to people who want to understand more about how the insurance market works.

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