Price-Linked Subsidies and Imperfect Competition in Health Insurance

Sonia Jaffe and Mark Shepard

American Economic Journal: Economic Policy, 2020, vol. 12, issue 3, 279-311

Abstract: Policymakers subsidizing health insurance often face uncertainty about future market prices. We study the implications of one policy response: linking subsidies to prices to target a given postsubsidy premium. We show that these price-linked subsidies weaken competition, raising prices for the government and/or consumers. However, price-linking also ties subsidies to health care cost shocks, which may be desirable. Evaluating this tradeoff empirically, using a model estimated with Massachusetts insurance exchange data, we find that price-linking increases prices 1–6 percent, and much more in less competitive markets. For cost uncertainty reasonable in a mature market, these losses outweigh the benefits of price-linking.

JEL-codes: G22 H75 I13 I18 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/pol.20180198 (application/pdf)
https://doi.org/10.3886/E115405V1 (text/html)
https://www.aeaweb.org/doi/10.1257/pol.20180198.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/pol.20180198.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Price-Linked Subsidies and Imperfect Competition in Health Insurance (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejpol:v:12:y:2020:i:3:p:279-311

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/pol.20180198

Access Statistics for this article

American Economic Journal: Economic Policy is currently edited by Matthew Shapiro

More articles in American Economic Journal: Economic Policy from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().