Carnegie Mellon University

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How Can We Encourage Consumers to Buy Health Insurance for All Family Members?

By Anh Nguyen, Assistant Professor of Economics

Never has the high cost of health insurance been more evident than during the Covid-19 pandemic.

For people without coverage through an employer, insurance is very expensive. The crisis has been doubly stressful for families who can’t afford insurance for all members. Even though the Affordable Care Act was meant to guarantee coverage during crises like this, many people have weathered the pandemic uninsured.

Pricing Insurance so Both Consumers and Insurers Win

The U.S. health insurance market is highly regulated. I’m studying ways to adjust regulations so coverage not only becomes more affordable but benefits insurance companies. How can we strategically rethink pricing family insurance plans so both consumers and insurers win?

My focus is on the ACA market. Under the ACA, insurers are not allowed to offer discounted coverage for a spouse or additional family members over 21, unlike most employer-sponsored plans. This is meant to simplify coverage but instead creates a barrier to access for those who can’t afford it. There’s no incentive for consumers to buy insurance for everybody in the family.

What if we did allow that discount? Data for enrollment and claims through the ACA show that a lot of people are buying only for the very sickest person in the family. Can we change the way those prices work so that you can actually encourage consumers to buy for everyone?

A Case Where Less Competition Benefits Consumers and Insurers

Revising regulations to allow companies to offer discounts would do this. For consumers, it means the whole family is covered, and at a lower cost than current rules allow. Companies like the fact that additional family members are generally healthier and cost less to insure. Getting more healthy people into the pool brings down costs. Firms are willing to charge less in order to get consumers to buy more coverage.

This is a case where less competition benefits both consumers and insurers: A consumer who buys insurance for herself will go to the same company for her family as well. Companies know this and aren’t likely to compete for those family members.

Revising this rule and allowing insurers to do more would be relatively easy. If firms have more flexibility in pricing, consumers are more likely to buy additional coverage that will help during catastrophes like this one.