Medicaid is a public insurance program that provides medical coverage to qualified families and low-income adults generally below the poverty line or 133% of the poverty line. As part of their 2006 health reform, Massachusetts created health insurance subsidies to low-income adults and families not eligible for Medicaid, with incomes between 133% and 300% of the federal poverty line (FPL). The subsidies varied discontinuously as a function of FPL, with premiums increasing at 150%, 200%, and 250% FPL. Finkelstein et al. (2019) use these estimates to form measures of the willingness to pay and cost of these subsidies. Hendren and Sprung-Keyser (2020) translate these estimates into their implied MVPF. This policy considers the subsidies at 150% FPL.
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Because individuals are offered a price for insurance, the Massachusetts setting provides a direct measure of recipient’s willingness to pay. Finkelstein et al. (2019) find that willingness to pay is roughly 30% of the cost paid by the Massachusetts insurance program. However, prior work suggests that roughly 70% of care to these individuals goes uncompensated (Finkelstein et al. (2019)), so that individuals are roughly willing to pay their resource costs of coverage. The baseline assumption made in Hendren and Sprung-Keyser (2020) is that the government pays the uncompensated care. This is conservative from the perspective of the main conclusions of the paper, as it leads to the highest MVPFs amongst their specifications.
Hendren and Sprung-Keyser (2020) form the MVPF using estimates of the willingness to pay and cost for insurance in Massachusetts. When prices are observed, willingness to pay for changes to insurance subsidies is straightforward. Lowering the cost of health insurance by $1 through a subsidy has a willingness to pay of $1 for the individuals choosing to purchase insurance.
The cost of the subsidy is the $1 plus an additional cost from the new enrollees. Finkelstein et al. (2019) estimate the subsidies, marginal costs, and fraction insured at different income thresholds. For the 150% FPL threshold, Finkelstein et al. (2019) estimate the marginal cost to the government from an additional $1 subsidy of insurance is roughly $1.25 so that the MVPF is 0.8.
Hendren and Sprung-Keyser (2020) also compute the MVPF at the 200% and 250% FPL thresholds. These yield MVPFs of 0.85 and 1.09 respectively. The MVPFs are higher at 250% FPL because the subsidies are lower, so that the willingness to pay falls closer to the cost imposed on the government from the marginal subsidy increase.
MVPF = 0.8
Finkelstein, Amy, Nathaniel Hendren and Mark Shepard (2019). “Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts,” American Economic Review, 109(4), 1530-1567. https://doi.org/10.1257/aer.20171455
Hendren, Nathaniel and Ben Sprung-Keyser (2020). “A Unified Welfare Analysis of Government Policies.” The Quarterly Journal of Economics, 135(3): 1209–1318. DOI: https://doi.org/10.1093/qje/qjaa006