State subsidized reinsurance programs: Impacts on efficiency, premiums, and expenses of the U.S. health insurance markets

Derrick W.H. Fung, Pengyu Wei and Charles C. Yang

European Journal of Operational Research, 2023, vol. 306, issue 2, 941-954

Abstract: In the U.S., states are allowed to apply for the Affordable Care Act section 1332 waiver to explore innovative strategies in providing quality and affordable health insurance. Most approved waivers seek to establish state subsidized reinsurance programs, which help offset potential losses of high-cost enrollees in individual markets. State subsidized reinsurance programs are expected to reduce premiums, but may induce moral hazard and adverse selection issues. In response, this research examines state reinsurance programs’ impacts on premiums, expenses, and efficiency in individual and other major health insurance markets. We use the non-oriented slacks-based efficiency model and the entropy-balancing difference-in-differences regression model. We pool all the states with reinsurance programs and use insurer-level data and a rich set of predictors for our outcome variables. We find that, overall, state reinsurance programs reduce premiums and do not decrease consumer efficiency in individual markets. However, their impacts are differential across states, with no significant effects in at least half of the states. We find mixed effects on expenses and medical utilization efficiency in individual markets, and there are no significant spillover effects in other major health insurance markets. This research informs the public and provides insights for the U.S. individual health insurance operations in implementing, regulating, and evaluating state reinsurance programs and refining premium benchmarking.

Keywords: Decision analysis; State subsidized reinsurance; Health insurance efficiency; Section 1332 waiver; Entropy-balancing (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221722006488
Full text for ScienceDirect subscribers only

Related works:
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:eee:ejores:v:306:y:2023:i:2:p:941-954

DOI: 10.1016/j.ejor.2022.08.005

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().