Regulating Markups in US Health Insurance

Steve Cicala, Ethan Lieber and Victoria Marone

American Economic Journal: Applied Economics, 2019, vol. 11, issue 4, 71-104

Abstract: A health insurer's Medical Loss Ratio (MLR) is the share of premiums spent on medical claims, or the inverse markup over average claims cost. The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives to increase costs. Using variation created by the rule's introduction as a natural experiment, we find medical claims rose nearly one-for-one with distance below the regulatory threshold: 7 percent in the individual market and 2 percent in the group market. Premiums were unaffected.

JEL-codes: G22 H51 I13 I18 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/app.20180011
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Citations: View citations in EconPapers (8)

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