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The price elasticity for insurance is high, and people find it difficult to search for coverage on their own. To address the price issue, the ACA provides income-based subsidies to low- and middleincome individuals to purchase coverage. Families with an income below 133 percent of the federal poverty line (about $30,000 in 2010) will pay 2 percent of their income for health insurance. Subsidies phase out when an income of 400 percent of the federal poverty line (about $88,000 in 2010) is reached. To make insurance accessible, the ACA creates a set of regional health insurance exchanges for individuals and small businesses, modeled after those operating in Massachusetts and Utah. The exchanges (discussed at greater length in the article in this issue by Duggan and Kocher) will certify plans, collect and process contributions, ensure that insurance products are standardized, and distribute risk-adjusted payments to plans. In many cases, the coverage provisions in the ACA match those in Massachusetts —which uses an insurance exchange, and subsidizes insurance for low- and middleincome people. As a result of the subsidies and the establishment of the exchange, the share of the population in Massachusetts that is uninsured fell by three-quarters. Thus, the Massachusetts experience was instrumental in convincing people that coverage could be made universal. Insurance exchanges involve choice, but choice in insurance markets is problematic. If premiums are pooled across healthy and sick people, healthy people will find insurance less attractive and may drop out. If insurers are allowed complete pricing freedom, in contrast, they will exclude the less healthy from coverage. Selection by either individuals or insurers can thus undermine efficiency and equity goals. To reduce selection on the part of individuals, the ACA has several features. First, it extends subsidies only to purchases made through an exchange. Effectively, this means that all non-group purchases will occur through exchanges, thus enabling transfers across individuals. Second, it allows people under age 26 to be covered on their parents’ policy. Since the members of this group are the least likely to buy coverage on their own, this limits the extent of selection. Third, the ACA requires that employers with more than 200 employees automatically enroll employees into insurance plans, with opt-out disenrollment (as opposed to opt-in enrollment).

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