The Health Benefits Simulation Model (HBSM): Methodology and Assumptions
Introduction
The purpose of this document is to describe the data and methods used to develop the Lewin
Group Health Benefits Simulation Model (HBSM). HBSM is a micro-simulation model of the
U.S. health care system designed to model the effect of policies designed to increase public and
private health insurance coverage.
HBSM should be thought of as a platform for analyzing the impact of health reform proposals.
The model includes a representative sample of households in the U.S. together with a database
of “synthetic firms” based upon three databases. It also includes econometric models of
individual and firm behavior which we use to simulate the impact of proposals affecting the
cost of health insurance.
The greatest challenge in modeling health reform is simulating the effect of proposals with
unique features that have never before been implemented. Because in these cases, there are no
historical data for us to reference in modeling program effects, we often need to customize the
model to apply suitable methods and assumptions. In many cases we use the model to simulate
the cost to employers and/or individuals of new coverage alternatives and financial incentives
created under the proposal. We then model the coverage choice for individuals and employers
based upon econometric analyses of the price elasticity for coverage and/or studies of changes
in the relative prices of coverage alternatives.
In addition, we model the impact of specific non-coverage proposals designed to reduce health
spending such as funding for health information technology (HIT), comparative effectiveness
research or malpractice reform. These ideas are modeled using the most recent research
available on the impact these programs would have on health care costs. These effects are
integrated into the HBSM model estimates of premiums reflecting these savings to estimate the
resulting change in coverage.
Because each policy proposal tends to be unique, we typically provide a narrative discussion of
how each proposal is modeled. This is essential to assuring to plan authors and policy makers
that we have realistically modeled the unique features of each proposal. Thus, our approach to
documentation is to have a single document presenting the key features of HBSM, as presented
here. We than describe in each individual study how the model was adapted and used to
simulate individual features unique to each proposal. An example of our approach is presented
in our analyses of the presidential candidates’ health reform proposals in 2008, which includes
though technical appendices documenting how HBSM was used to model the unique
approaches proposed by the candidates
In this document, also provide a detailed discussion of key components of the model that are
most relevant to policy proposals that have emerged in recent years. These include:
- Attachment A: Estimating the participation function for the Medicaid Program;
- Attachment B: The impact of price on the purchase of insurance by individuals;“McCain and Obama Health Care Policies: Cost and Coverage Compared,” The Lewin Group, October 8, 2008.
- Attachment C: The impact of price on the employer decision to provide coverage;
- Attachment D: Medicaid take-up equations for workers with and without access to
- employer coverage;
- Attachment E: An analysis of the impact of the FMAP on state Medicaid spending;
- Attachment F: A summary of literature research on the effects policies to prevent substitution of private coverage with public coverage in public subsidy/program expansion proposals; and
- Attachment G: Discussion of how the CPS is used to develop estimates of the number of uninsured that includes a correction for underreporting of Medicaid coverage.
We summarize the overall modeling approach used to simulate the cost and coverage impacts of programs to expand insurance coverage in the following sections:
- Introduction
- Modeling approach;
- Baseline database;
- Medicaid and SCHIP Expansions;
- Individual tax credits and other insurance subsidies;
- Employer premium subsidies;
- Employer contribution requirements
- Simulation of risk selection for new insurance pools;
- Iterative simulation of market effects;
- Single-payer plans;
- Health services utilization;
- Provider reimbursement;
- Simulation of administrative costs;
- Proposals to restructure consumer incentives; and
- Caveats.
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This article was prepared for general information purposes only to permit you to learn more about Ingenix Consulting and its services. It is not intended as a basis for decisions in specific situations, may not be current, and is subject to change without notice.