Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges

Michael Geruso, Timothy Layton and Daniel Prinz ()

American Economic Journal: Economic Policy, 2019, vol. 11, issue 2, 64-107

Abstract: We study insurers' use of prescription drug formularies to screen consumers in the ACA Health Insurance exchanges. We begin by showing that exchange risk adjustment and reinsurance succeed in neutralizing selection incentives for most, but not all, consumer types. A minority of consumers, identifiable by demand for particular classes of prescription drugs, are predictably unprofitable. We then show that contract features relating to these drugs are distorted in a manner consistent with multidimensional screening. The empirical findings support a long theoretical literature examining how insurance contracts offered in equilibrium can fail to optimally trade off risk protection and moral hazard.

JEL-codes: D82 G22 H51 I13 I18 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/pol.20170014
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Citations: View citations in EconPapers (39)

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Working Paper: Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges (2016)
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