qotd: CBO microsimulation of demand for health insurance

Congressional Budget Office
AcademyHealth Annual Research Meeting
June 9, 2014
Microsimulation of Demand for Health Insurance: A Method Based on
Elasticities
By Jessica S. Banthin

CBO's Health Insurance Simulation Model (HISIM)

* The first version was developed in 2002 to model various proposals for
expanding coverage, including direct subsidies, changes to tax
incentives, and insurance market reforms.

* The model is updated regularly to incorporate new data, the most
recent economic forecast, changes in law or regulations, and technical
improvements.

Major Outcomes Modeled by CBO's HISIM

* Effects on the federal budget

* Changes in coverage by source of coverage
– Uninsured
– Employment-based coverage
– Medicaid
– Exchange(Subsidized and unsubsidized)
– Other(Including nongroup coverage outside of the exchanges, Medicare,
and military health care)

* Occasional analyses of premiums, individual out-of-pocket spending,
and outcomes by relationship to the Federal Poverty Level

By simulating behavior for each individual and family unit, the
estimates capture the distribution of responses rather than average
response by cell or subgroup, as in a simpler spreadsheet-type approach.

By taking advantage of detailed information collected in household
surveys such as the SIPP on individuals and families and the
relationships between key variables such as income, health status,
employment status, and coverage, the estimates better reflect outcomes
under new policies.

Individual behavior is modeled using an elasticity approach, not an
expected utility approach.

The General Form of HISIM's Take-Up Response

* For each person i considering coverage k:
∆𝑝𝑟(〖𝑐𝑜𝑣𝑒𝑟𝑎𝑔𝑒〗_𝑖𝑗𝑘)=𝜀_𝑗𝑘∗%∆𝑝_𝑖𝑗𝑘
Where 𝑗 is the initial type of insurance coverage (including uninsured)
for person i and 𝑘 is the type the person is considering selecting.

* 𝜀_𝑗𝑘 is the elasticity of the change in probability of taking-up
coverage type k, given the person's initial coverage status j, and with
respect to a percent change in price, %∆𝑝_ 𝑖𝑗𝑘 in moving from
coverage 𝑗 to coverage 𝑘.

Estimated Effects of the Affordable Care Act on Health Insurance
Coverage, 2024 (non-elderly people):

UNINSURED:

Without the ACA: 57 MILLION
Under the ACA: 31 million

INSURED:

Without the ACA
35 million - Medicaid and CHIP
166 million - Employment-Based
27 million - Nongroup and Other

Under the ACA
25 million - Exchanges
48 million - Medicaid and CHIP
159 million - Employment-Based
22 million - Nongroup and Other

Estimated Budgetary Effects of the Insurance Coverage Provisions of the
Affordable Care Act, 2015 to 2024:

~ $1,400 billion

http://www.cbo.gov/sites/default/files/cbofiles/attachments/45427-AcademyHealth.pdf

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Comment by Don McCanne

Imagine how complex it is trying to estimate who will be eligible for
and how many will select each of the various sources of coverage, how
many will end up uninsured, and what impact that will have on the
federal budget. The few excerpts above from the CBO presentation,
"Microsimulation of Demand for Health Insurance: A Method Based on
Elasticities," provide an inkling of the complexity of that task.

Now imagine how simple it would be to estimate coverage under a single
payer system. To the total population, estimates of births and
immigration would be added and estimates of deaths and emigration would
be subtracted. The CBO microsimulation serves as a proxy for the
profound unnecessary administrative complexity and waste in our system.

The CBO is tasked with making projections for our federal budget. They
estimate that the increase in federal spending on health care over the
next decade due solely to the insurance coverage provisions of the
Affordable Care Act will be ~ $1.4 trillion! This does not include the
fact that individuals will be paying more because of the decrease in
actuarial value of plans within and outside of the exchange, including
especially the declining actuarial value of the largest sector of all -
employer-sponsored plans. Our total national health expenditures is a
much more important number than is the portion in the federal budget.

As we've said repeatedly, the ACA model falls short on most of the goals
and it is the most expensive of the comprehensive models of reform. In
contrast, the single payer model meets essentially all goals and is the
least expensive of comprehensive models.

Because of the great number of variables and interdependent complexity
of our health care financing, the CBO has declared that in the future it
can no longer give a reasonable estimate of the changes in the federal
budget due to the implementation and perpetuation of the provisions of
the Affordable Care Act. That should tell you something. It's time for
single payer.