Inertia, Market Power, and Adverse Selection in Health Insurance: Evidence from the ACA Exchanges

Evan Saltzman, Ashley Swanson and Daniel Polsky

No 29097, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how inertia interacts with market power and adverse selection in managed competition health insurance markets. We use consumer-level data to estimate a model of the California ACA exchange, in which four firms dominate the market and risk adjustment is in place to manage selection. We estimate high inertia costs, equal to 44% of average premiums. Although eliminating inertia exacerbates adverse selection, it significantly reduces market power such that average premiums decrease 13.2% and annual per-capita welfare increases $902. These effects are substantially smaller in settings without market power and/or risk adjustment. Moreover, converting the ACA's premium-linked subsidies to vouchers mitigates the impact of inertia by reducing market power, whereas reducing high consumer churn in the ACA exchanges increases the impact of inertia by enhancing market power. The impact of inertia is not sensitive to provider network generosity, despite greater consumer attachment to plans with more differentiated provider networks.

JEL-codes: G22 I11 I13 L1 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-com, nep-hea, nep-ias and nep-isf
Note: EH IO
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Citations: View citations in EconPapers (3)

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