Tuesday, July 1, 2014

ACA/Obamacare: “Sticker Shock”, Pauly, Harrington and Leive

The paper It All Depends: “Sticker Shock” in Health Insurance Reform, Pauly, Harrington and Leive, Wharton School, 01/04/2014 the conclusion is as follows:


"This analysis of the change in total expected payment for those to be covered in post-ACA exchanges tells rather different stories about "sticker shock." On the one hand, among those who previously bought individual coverage, premiums generally increase only modestly if they choose the plans with the lowest bronze or silver premiums. While bronze premiums are lower than what was paid before, however, estimated out of pocket payments are higher, so the net effect is a moderate increase in TEP. If people choose to pay the median silver premium, the increase will be larger, but (at 25-30%) is still much lower than some of the estimates from the informal literature.

The sticker shock story is much different for the previously uninsured. The low income previously uninsured will have subsidies to cover much of the higher premiums and cost sharing to which they will be subject. But the previously uninsured who will receive minimal subsidies, who constitute a sizeable fraction of the uninsured population, are estimated to experience a very large increase in financial responsibility. Not only will they have to pay significant premiums but, because of increases in total utilization because of moral hazard or greater willingness of providers to supply care, their responsibility for out of pocket payment will also increase. They will pay a slightly smaller fraction of their total cost of care than when they were uninsured, but the total cost will increase to such an extent that the financial burden will rise.

We have not provided welfare calculations for this population. Such calculations would reduce the change in TEP by an estimate of the value to them of additional care (but by something less than the cost of that care), and by a small reduction in the risk of very high levels of OOP. One reason for this large increase in TEP is the small average OOP for the non-low-income uninsured in the CPS data, and this data may have underestimated the relatively rare event of a high out of pocket payment. Even so, it seems that this is the population that will be subject to the most severe financial shock from health reform."

Note: click the link below then once upon the page which the link leads you to, click the very first link in the column of links and it will take you to the un-gated pdf version of this paper.



A worthy point within the paper is that the previously uninsured taking the largest total expected payment (TEP) increase:

"Given our assumptions, an insurance plan can be evaluated in terms of its "Total Expected Price" (TEP), defined by:

(1) TEP* = P* + OOP*

where P* is the average premium paid by persons in a given subgroup, OOP* is the average expected amount paid out of pocket, and TEP* is the sum of the "average person’s" premium and the average person’s expected value of out of pocket payments."

"The policy exemplar of an uninsured person is one who faces the risk of paying out of pocket for all of their medical care, which means either high financial risk (if care is used) or reduced access (if it is not). But the combination of charity and bad debt care, combined with the effects of incentives to seek out free care at emergency departments of hospitals, mean that the uninsured as a group do not either face or pay the full market price paid by insured patients. Somewhat surprisingly, this use of free or subsidized care even applies to the large minority of uninsured people who have incomes high enough that they could "afford" insurance (Bundorf and Pauly, 2006). So the relevant analysis of the financial consequences (though not the welfare consequences) from health reform that results in insurance purchase for this population compares their actual out of pocket payment when uninsured with the combination of premiums and out of pocket payments they will face under bronze and silver plans after reform."

Upon further review, will the uninsured remain uninsured because they already know how the system works i.e. "combination of charity and bad debt care, combined with the effects of incentives to seek out free care at emergency departments of hospitals". It would be a rational response to a price spike to avoid the price increase and remain at zero price. Further, not only do the uninsured understand how the system works, they may feel comfortable, in that, they have learned what to obtain health-care so why bother learning a new system (if it isn't broke, don't fix it).

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