How Can We Efficiently Cover the Uninsured? A Micro-Simulation Model of Health Insurance Coverage

The number of uninsured people in the U.S. is increasing, and various policies have been discussed and introduced to extend health insurance coverage. To analyze the effects of these policies, it is essential to consider the complexity of the problem of the uninsured. This paper employs simulation approach to develop a model of health insurance coverage, and uses this model to analyze the effects of various policies. The model is a microeconomic model of individual decision making with regard to health insurance coverage and health care consumption, and insurer determination of premiums. The parameters of the model are calibrated by using simulated method of moments (SMM). The model is calibrated to data from the Medical Expenditure Panel Survey (MEPS) in 2003. This model is then used to predict the change in the number of the uninsured and to evaluate the change in social welfare caused by the following policies to cover the uninsured: introduction of health insurance vouchers, CDHP (Consumer Driven Health Plan)-type high deductible plans and regulation of charity care. The analysis is restricted to single-person households. Introduction of a health insurance voucher in individual health insurance market reduces uninsured rate from 20.4% to 16.4%, while introducing the voucher in all health insurance market reduces the rate to 9.2%. The change in social welfare is almost negligible under the former policy, while social welfare is decreased by 5.9% under the latter. Mandating CDHP-type high deductible plans decreases the rate of the uninsured to 13.2%, and social welfare is increased by 21.4%. Eliminating discounted charity care but sustaining free charity care is found to reduce uninsured rate to 6.1% and increase social welfare by 0.6%. This study is a first step towards a comprehensive and coherent framework for the evaluation of policies for the uninsured. Further development of the model, such as incorporating employers' health insurance offer decisions, will enable us to make more precise prediction of the effects of the policies