The individual welfare effects of the Affordable Care Act for previously uninsured adults


The Affordable Care Act (ACA) improved welfare by expanding, subsidizing, and standardizing healthcare coverage. At the same time, the law also penalizes the remaining uninsured and establishes a benchmark private policy that charges premiums and cost-sharing expenses in the non-group market. This paper introduces a conceptual and empirical framework for evaluating the net effects of ACA coverage expansions for the individual welfare of previously uninsured adults. Using restricted-access data from the 2010–2012 Medical Expenditure Panel Survey, I evaluate the short-term welfare effect as a function of health and non-medical consumption. I simulate post-ACA insurance status then evaluate the change in expected medical consumption and the utility of consumption by estimating parameter values for a generalized gamma distribution of the ex-ante spread of healthcare and medical spending for each person. The ACA generates a modest net improvement in individual welfare on average (+ $91). While low-income individuals realize gains (+ $539), all other income-groups realize increasingly large losses. The uninsured majority (65%) realize average losses (− $158). Medicaid beneficiaries realize substantial gains (+ $1309). While in most specifications, exchange enrollees realize average gains (+ $146), just under a quarter (24%) realizes any improvement. The chronically-ill realize substantial gains (+ $1065). The non-chronically-ill majority (71%) realize average losses (− $312). Despite weakly lower risk premiums (− $28), medical spending increases in catastrophic scenarios on average. The ACA improves the welfare of some, especially the low-income and chronically-ill. Medicaid generates unequivocal gains for beneficiaries. Most previously uninsured adults remain uninsured, some of whom pay a penalty. The subsidized cost of ACA private insurance outweighs its benefits for most exchange enrollees.

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  1. 1.

    This analysis simulates the law’s effects as initially passed and enforced, which includes a financial penalty for those who remain uninsured. Congress has since eliminated the penalty.

  2. 2.

    When Handel (2013) divides a large sample into 104 small, finely tuned categories of expected medical spending, each observed distribution of medical expenditures exhibits a prominent right tail. This suggests that each individual faces a skewed distribution of potential medical needs.

  3. 3.

    For simplicity, I assume that in the short term, a change in insurance status does not prevent health problems nor alter the consumer’s labor productivity or wages.

  4. 4.

    For example, the generalized gamma was used to estimate inpatient medical expenditures, which are drawn from a heavily skewed distribution, in which most population members will have an observation of $0 but those above $0 tend to be very high (Manning et al. 2005).

  5. 5.

    See Appendix Table A2 for gamma regression results and variable specifications.

  6. 6.

    I do not deduct debt from initial endowment because the individual can consume equity in one form, e.g. a home equity line of credit, without necessarily detracting from debt in another, e.g. a credit card. The two don’t necessarily cancel each other out.

  7. 7.

    For example, if a family holds $150,000 in home equity and their state exempts $100,000 worth of that asset type, they pay $50,000 in home equity. Higher income households pay the maximum amount between the asset- and income-based rules per state and federal regulations.

  8. 8.

    Reflecting the lower proportion of states expanding Medicaid in this study relative to all states, this figure is slightly higher than the literature consensus on the overall population (60–62%) (Clarke et al. 2017; Garrett and Gangopadhyaya 2016; Uberoi et al. 2016). My estimate of 65% falls between estimates of the number remaining uninsured in expansion states (55%) and non-expansion states (71%); and somewhat closer to the non-expansion states (Garrett and Gangopadhyaya 2016).

  9. 9.

    Poor health is defined as any prior diagnosis of one of the nine conditions most predictive of medical spending in the population: angina, cancer, coronary heart disease, diabetes, myocardial infarction, poor mental health, any physical limitation, asthma, or emphysema.

  10. 10.

    I find the expected value of medical claims paid (medical consumption—OOP) for each individual, and deduct half of that value from the original estimate of welfare change.

  11. 11.

    Medicare X introduced by senators Tim Kaine (CO) and Michael Bennet (VA)

  12. 12.

    Choose Medicare Act, introduced by senators Jeff Merkley (OR) and Chris Murphy (CT)

  13. 13.

    Medicare for all

  14. 14.

    E.g. the bill lists a 10% tax on estate value in excess of $500 million or above $1 billion for married couples.


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Zewde, N. The individual welfare effects of the Affordable Care Act for previously uninsured adults. Int J Health Econ Manag. 20, 121–143 (2020).

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  • Affordable Care Act
  • Welfare
  • Medicaid
  • Marketplace
  • Exchange
  • Private insurance
  • Deductibles

JEL Classification

  • I13
  • I18
  • I38