Low-Income People Drop Coverage as Subsidies Fall and Premiums Rise

Efforts to give low-income people the incentive to purchase health coverage may not be working as well as policymakers had hoped, according to a study by economists at MIT and Harvard. Looking at data from CommCare, Massachusetts’ subsidized insurance exchange, researchers found that “enrollee demand is highly sensitive to premiums. With each discrete increase in enrollee premium, enrollment in CommCare falls by 20 to 24 percentage points, or about 25% of total enrollment.”

They add: “As subsidies decline, insurance take-up falls rapidly, dropping about 25% for each $40 increase in monthly enrollee premiums. Marginal enrollees tend to be lower-cost, consistent with adverse selection into insurance. But across the entire distribution we can observe – approximately the bottom 70% of the willingness to pay distribution – enrollee willingness to pay is three to four times below own expected medical costs.”

Source: Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts