Modeling the Impact of Health Care Reform on Consumers

This paper studies the impact of the Health Insurance Marketplace (the Marketplace) on consumers. The aim is to study the motivation behind the consumer choice and the roles that insurers and government play. It also provide insights in improving the efficiency in the Marketplace.This paper introduces a cost point of view in modeling consumer decision. Consumers make rational choice by optimizing the objective function. The objective function includes the actual costs and the cost equivalent of health utilization. It is driven by the evidence that consumers value their costs most importantly. Moreover, this paper presents a conceptual framework of dividing health utilization into regions. This captures the practical features such as over utilization in healthcare. Bounded rationality is also discussed and three potential directions are provided. This paper also builds a model to predict medical expenditure which consists of a regression, a transition, and an evolution of the parameters. This model is the first to use the number of service visits as predictors. This is consistent with the collecting process of data which is at an service event base. Moreover, it incorporates the behavior considerations of the different insurance status of consumers. Aside from this model, two alternatives models are considered for comparison. They reflect two existing approaches: regression on personal characteristics and log transformation for nonzero expenditures. The predictors are selected and their coefficients are evaluated using the longitudinal data from Medical Expenditure Panel Survey (MEPS). The two alternatives are compared with the model and it turns out that the model outperforms them in both prediction accuracy and variability explanation. Finally this paper presents simulation of consumer choice. The results suggest that the cost saver better matches the statistics from the federal government than the utility maximizer. The results provides implications to the share between insurers and consumers. The actuarial values (the share of expenditure paid by insurers) is calculated based on simulated participation. They demonstrates inconsistency with the standard ones. Therefore inefficiency exits in the actuarial value calculation. This paper also evaluates the government involvements in the Marketplace. The results suggest that its involvements, especially the government subsidies, effectively encourage the broader participation of insurance plans.