The Health Insurance Policy Simulation Model (HIPSM)

The Urban Institute’s Health Insurance Policy Simulation Model, or HIPSM, is a detailed microsimulation model of the health care system. It estimates the cost and coverage effects of proposed health care policy options. HIPSM can be rapidly adapted to analyze a wide variety of new scenarios and can describe the effects of policy options at a number of points in time.

To evaluate how the health care system would be affected by policy changes, HIPSM simulates the decisions of employers, families, and individuals to offer and enroll in health insurance coverage. The model is designed to show the effect of policy on government and private health care spending, uncompensated care costs, health insurance premiums in employer and nongroup health insurance risk pools, rates of employer offers of coverage, and health insurance coverage.

HIPSM uses data from several national datasets. It relies primarily on the Current Population Survey (CPS) Annual Social and Economic Supplement, and data from several other surveys that are matched to the CPS. The model includes a detailed simulation of Medicaid eligibility and enrollment, including eligibility rules for each state and an adjustment for the undercount of Medicaid on the CPS.

To calculate the effects of reform options, HIPSM uses a flexible simulation approach based on the relative desirability of health insurance options available to each individual and family under reform. The approach, known as a utility-based framework, allows new coverage options to be assessed without simply extrapolating from historical data, as in previous models. Within HIPSM, health insurance decisions made by individuals, families, and employers are calibrated to findings in the best empirical economics literature.

The model’s capabilities are broad and include the following analyses:

  • the consequences over time of maintaining the status quo in the health care system
  • Medicaid and Children's Health Insurance Program eligibility expansions, with different eligibility rules for children, parents, and nonparents
  • new public coverage options
  • health insurance exchanges, with specified premium rating rules (e.g., age-rating) and alternative benefit packages
  • other health insurance market reforms, including changes in premium rating rules and rules of issue
  • income-related premium and/or cost-sharing subsidies for the nongroup market, group market, and/or a new exchange
  • plan choice between comprehensive and high-deductible plans, public plan options, and capability to model plans with differing levels of actuarial value; individual mandates, pay-or-play employer mandates, and employer assessments (e.g., by employee wage)
  • tax credits for employer premium contributions
  • single-payer systems
  • reinsurance for high-cost cases
  • choice of year in which reforms are to be applied, with adjustments made to population characteristics and dollar amounts based on specified demographic, economic, and health care cost trends

For each modeled policy and year, HIPSM produces results on the following:

  • effects on employer and individual coverage within and outside exchanges, public coverage, and number of uninsured
  • changes in coverage by age and income group
  • characteristics of those who remain uninsured (e.g., by undocumented status and health status)
  • Medicaid participation rates among newly and already eligible persons
  • changes in premiums for employer and individual coverage
  • premiums net of subsidies for subsidy-eligible individuals
  • changes in health care costs for government, employers, and individuals
  • changes in uncompensated care costs

In addition to national estimates, HIPSM can generate reliable estimates of each reform option by state. A detailed state-level analysis requires a state-specific baseline dataset that accurately represents a state’s coverage distribution and population characteristics. The HIPSM team has developed procedures for pooling multiple years of CPS data and/or data from the same region, reweighting the data to have the population characteristics of the study state, and aging the data to the present year to produce state-specific baseline files to meet required specifications. We have successfully completed analyses for New York and Colorado using this approach.

Analysis using HIPSM can shed light on national and state-level policy options in the implementation of national health care reform legislation, including the following:

  • coverage, cost, and distributional impact analysis of the enacted health reform legislation; quick-turnaround simulation of proposed changes to the legislation; and analysis of final health reform legislation for the nation or for specific states
  • analysis of options left open to states after health reform, including enhancements to subsidy schedules in the Health Insurance Exchanges, eligibility options for coverage in the new Exchanges (including employer size choices, options to merge the nongroup and small group Exchanges, and the implications of state decisions on coverage), household financial burdens, and government costs
  • analysis of the implications of the federal law’s subsidy indexing formula that is likely to lead to household premium contributions in the Exchange growing faster than incomes over time
  • if costs are not contained, more people may become exempt from the requirement to obtain health insurance coverage because of a lack of affordable premiums; HIPSM can analyze the distributional consequences of such a situation for households as well as implications for the sustainability of broader health insurance risk pools