Adverse Selection and the American Care Act Testing the Implications of the Roberts Opinion Claire Leavitt Boston University 6 April 2014

THE ACT: Provisions Individual mandate “Guaranteed issue”: Prohibits insurance companies from denying coverage based on preexisting conditions “Community rating”: Prohibits insurance companies from setting premiums based on preexisting conditions

THE RULINGS National Federation of Independent Businesses v THE RULINGS National Federation of Independent Businesses v. Sebelius June 2012 A majority of the Justices agreed that the mandate fell outside Congressional powers under the Commerce & Necessary and Proper Clauses 5-4 in favor of the mandate’s constitutionality under Article I (Congress’s taxing power)

THE OPINION: Penalty = Tax? Intent: Mandate’s absence of malicious intent Scope: IRS granted power to collect “penalty” without punitive action Size: Proposed penalty is relatively low

THE OPINION: Penalty = Tax? “For most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance….”

THE OPINION: Penalty = Tax? “Individuals making $35,000 a year are expected to owe the IRS about $60 for any month in which they do not have health insurance. Someone with an annual income of $100,000 a year would likely owe about $200. The price of a qualifying insurance policy is projected to be around $400 per month.”

PENALTY VERSUS INSURANCE DECISIONS FOR VARYING INCOMES Family Income Maximum % of income to be spent on insurance (per year) Dollars to be spent on insurance (per year) Insurance cost as percent of penalty Likely Decision $35,000 3.97% $1,388 67% BUY $40,000 4.96% $1,982 95% $45,000 5.94% $2,672 128% DON’T BUY $50,000 6.77% $3,385 162% $55,000 7.52% $4,135 198% $60,000 8.23% $4,937 236% $65,000 8.85% $5,751 276% $70,000 9.47% $6,626 318% $75,000 9.50% $7,125 342% $80,000 $7,600 365% $85,000 $8,075 387% $90,000 $8,550 410% $95,000 No maximum Full cost 400+% $100,000 Source: Thomas Lambert 2013

HYPOTHESES H1: Individual-level economic/political decisions made via rational, cost-benefit analyses H2: Strategic model for Supreme Court decision-making

RESEARCH DESIGN Test of H1 via survey experiment Qualtrics-designed; distributed via Amazon’s Mturk $.25 per survey Participant sample requirements: Currently living in the US Uninsured (as of 31 March 2014) Over age 18 N=374 (usable, of 2,000 respondents)

Treatments randomly assigned for each of SIX income brackets RESEARCH DESIGN Treatment: Financial information (average cost of Bronze Plan premium and penalty) to enable cost-benefit calculation Control: Brief description of ACA requirements; no financial info Treatments randomly assigned for each of SIX income brackets

Survey Hypotheses H0: There will be a significant difference btw. the treatment and control groups for income brackets for which Premium > Penalty Ha: There will be no statistically significant difference btw. the treatment and control groups for all income brackets

Sample Attributes

Sample Attributes

Difference-of-means across income groups Income Bracket N (treatment) N (control) N Mean (treatment) Mean (control) Welch’s t-statistic (d.f.) P-value Less than $11,000 62 64 126 .645 .67 .31 (123) .75 $12,000-$20,000 60 59 119 .8 .85 .67 (119) .5 $21,000-$30,000 23 21 44 .82 .52 -2.19 (37) .035* $31,000-$40,000 24 47 .71 .91 1.82 (39) .076-- $41,000-$60,000 16 13 29 .875 .77 -.7 (22) .48 More than $60,000 5 4 9 .4 .26 (6) N = 374; -- = p<.10; * = p<.05

Logit estimates of IVs on Purchase Decision VARIABLE CONTROL TREATMENT Intercept .83 (.5) .47 (.45) Party (Democrat/Other) 1.45** (.5) .56 (.41) Race (White/Non-white) -1.25* (.53) -.14 (.52) Basic Knowledge -.7 (.43) .29 (.38) Advanced Knowledge -.05 (.21) .05 (.22) Income .28 (.16) .05 (.13) N=184 N=190 N = 374; -- = p<.1; * = p<.05; **=p<.01

Results No evidence that suggests full financial information (enabling rational cost-benefit calculation) affects purchase decision No solid evidence of traditionally-defined politicization, suggesting the uninsured may opt out of purchasing coverage for unknown reasons

Thanks for your attention. Claire Leavitt Boston University 6 April 2014