Impact of Premium Subsidies on the Take-up of Health Insurance: Evidence from the 2009 American Recovery and Reinvestment Act (ARRA)

We study the impact of the 65-percent federal health insurance premium subsidy, which aimed to help unemployed workers retain coverage and was in effect from February 2009 to May 2010 through the American Recovery and Reinvestment Act (ARRA). In doing so, we also estimate the price elasticity of demand for health insurance using very recent public policy variation. Our research contributes to the evaluation of the ARRA subsidy's coverage impact and to a better understanding of consumer responses to subsidized coverage options through the Affordable Care Act. We find that the ARRA subsidy is associated with a 15.2-percent increase in the continuation of employer coverage. This translates into a price elasticity estimate of -0.24, which is towards the middle range of elasticities in existing studies. We also find evidence that part of the increase in the continuation of employer coverage was offset by a decrease in non-group insurance.