Individual Insurance Decisions under HR 3560 and HR 3962

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In an effort to induce a larger number of individuals in the United States to purchase health insurance and thereby reduce problems of adverse selection that would otherwise interfere with simultaneous efforts to limit medical underwriting and abolish pre-existing condition exclusions, legislation under debate in the United States Congress imposes penalties on most households that do not have and that do not purchase health insurance. This Demonstration examines the expected position of households under the two leading bills based on the household's decision whether to purchase insurance or whether to pay a penalty instead.
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Contributed by: Seth J. Chandler (March 2011)
Open content licensed under CC BY-NC-SA
Snapshots
Details
This Demonstration does not attempt to incorporate moral hazard, the proclivity of insurance to induce more of the behavior insured against, in this case using covered medical services. It omits this complication (a) because modern health insurance contracts through use of deductibles, coinsurance, and various exclusions such as medical necessity reduce moral hazard and (b) because one would then have to ascribe monetary value to the possible diminution in health status resulting from reduced medical services.
Using "spectral methods" to address risk aversion is discussed in a variety of sources. See, for example, the Wikipedia page for Spectral Risk Measure, or C. Acerbi, "Risk Aversion and Coherent Measures: A Spectral Representation Theorem," arXiv.org, 2001, or K. Dowd, J. Cotter, and G. Sorwar, "Spectral Risk Measures: Properties and Limitations," Journal of Financial Services Research, 34(1), 2008 pp. 61–75.
Snapshot 1: the same settings as in the "thumbnail", but showing the "medical expense" control bank
Snapshot 2: the same settings as in the "thumbnail", but showing the "insurance contract" control bank
Snapshot 3: the same settings as in the "thumbnail", but showing the "advanced" control bank; in this instance, risk aversion is set to zero
Snapshot 4: using the simple "direct" interface under which the penalty is set explicitly by the user
Snapshot 5: using the "computed" interface and setting the bill to HR 3590 to expose the parameters that determine the applicable penalty
Snapshot 6: using the "computed" interface and setting the bill to HR 3962 to expose the parameters that determine the applicable penalty
Snapshot 7: setting the year to 2018 and an inflation setting of 4% under HR3590
Snapshot 8: setting the mean medical expenses to $2,000 and the standard deviation to $4,000
Snapshot 9: setting the penalty directly to $500 and using low (0.5) risk aversion
Snapshot 10: setting the penalty directly to $500 and using high (3.0) risk aversion
Permanent Citation
"Individual Insurance Decisions under HR 3560 and HR 3962"
http://demonstrations.wolfram.com/IndividualInsuranceDecisionsUnderHR3560AndHR3962/
Wolfram Demonstrations Project
Published: March 7 2011