Adverse selection and price sensitivity when low-income people have subsidies to purchase health insurance in the private market

Policymakers interested in subsidizing low-income people's purchase of priv ate insurance face two major questions will such subsidies lead to adverse selection and how large do the subsidies have to be to induce large numbers of eligible people to purchase the insurance? This study examines New Jers ey's short-lived experience with a premium subsidy program, Health Access N ew Jersey (Access Program). The program was for people in families with inc omes below 250% of the poverty level who were not eligible for health insur ance provided by an employer, or Medicaid or Medicare, and who wished to pu rchase policies in the state's individual health insurance market, the Indi vidual Health Coverage Program. Surveying a random sample of Access Program policyholders, we compared their demographic and socioeconomic characteris tics, as well as their health status, to those of other New Jersey resident s who had family incomes below 250% of the poverty level to determine wheth er there was any evidence of adverse selection among the people who enrolle d in the Access Program. The people who enrolled were not in worse health t han uninsured people with incomes below 250% of the poverty level, but they were quite price sensitive. Most enrollees had incomes within the low end of the income eligibility distribution, reflecting the structure of rapidly declining subsidies as income increased.