HEALTH INSURANCE REFORM IN AN EXPERIMENTAL MARKET

March 24, 2009

A new National Federation of Independent Business (NFIB) sponsored study of health insurance markets applied experimental economics to health care policy.  The researchers built an insurance market in a laboratory and tested various scenarios on paid participants.  The study compared wages, profits, and bankruptcies under scenarios involving individual mandates, employer mandates, premium restrictions, minimum employer contributions, number of policies offered, and the degree to which employees understand health insurance.

What did the researchers find?

No panaceas:

  • Employee and individual mandates, separately or combined, don\'t improve outcomes for all stakeholders.
  • Some reform scenarios actually come close to making everyone worse off.

Small is vulnerable:

  • Small employers and their employees are especially vulnerable to policy changes and mandates.
  • Small companies lack the advantage of size when optimizing their health care spending and pay disproportionately higher costs for providing benefits.
  • Large companies with low profit margins tend to exhibit preferences similar to small companies, even though they have many employees and otherwise act "large."

Choosing for others:

  • Individuals seem better able to pick insurance plans for themselves than for other people.
  • One reason is that employers have better information about their own needs than about their employees\' needs.

Minimum contributions:

  • Requiring employers to pay for half of individual insurance costs reduces employer earnings, but increases employee incomes -- at least in the short run.
  • Small and low-margin companies are especially hurt by minimum contribution requirements.
  • Without a mandatory employer contribution, an individual mandate increases employer profits but reduces employee incomes.

Source:  "Health Care Reform Simulation Summary," National Federation of Independent Business, March 19, 2009; based upon: Stephen Rassenti and Carl Johnston, "Health Insurance Reform In An Experimental Market," National Federation of Independent Business, March 19, 2009.

 

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