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

2. 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

3. 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)

4. 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

5. 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….”

6. 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.”

7. 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

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

9. 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)

10. 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

11. 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

12. Sample Attributes

13. Sample Attributes

14. 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

15. 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

16. 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

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