Insurance without Commitment: Evidence from the ACA Marketplaces

Rebecca Diamond, Michael J. Dickstein, Timothy McQuade and Petra Persson
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Michael J. Dickstein: New York U
Timothy McQuade: Stanford U
Petra Persson: Stanford U

Research Papers from Stanford University, Graduate School of Business

Abstract: We study the dynamics of participation and health care consumption in the Affordable Care Act's health insurance marketplaces. Unlike other health insurance contexts, we find individuals commonly drop coverage midyear--roughly 30% of enrollees exit within nine months of sign-up. While covered, dropouts spend more on health care than in the months before sign-up or after exit. We model the consequences of drop-out on equilibrium premiums and consumer welfare. While dropouts generate a type of adverse selection, the welfare effect from their participation is ambiguous and depends on the relative costs per month of part-year vs. full-year enrollees. In our empirical setting, we find that imposing a penalty that incentivizes participation for at least 3.5 months would lower premium levels and improve overall consumer welfare.

Date: 2020-12
New Economics Papers: this item is included in nep-hea and nep-ias
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Working Paper: Insurance without Commitment: Evidence from the ACA Marketplaces (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3930

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