Partial Rating Area Offering in the ACA Marketplaces: Facts, Theory and Evidence

Hanming Fang and Ami Ko ()
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Ami Ko: Department of Economics, Stanford University

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: In the health insurance marketplaces established by the Affordable Care Act (ACA), each state is divided into a set number of geographic “rating areas.†The ACA mandates that an insurer price its health insurance plan uniformly in all counties within the same rating area, conditional on insurees’ age and smoking status. However, the ACA does not require that an insurer sell its plan in all counties in a rating area. Using the federal marketplace data, we quantify the prevalence of a phenomenon, which we refer to as partial rating area offering, where insurers enter some but not all of the counties in a rating area. To understand why insurers selectively enter a subset of the counties in a rating area, we develop a simple model of insurer competition. The model implies that if common county characteristics, such as the county’s risk distribution, market size and provider availability, are the primary drivers for the partial rating area offering phenomenon, then there would be a positive correlation among insurers’ entry decisions. In contrast, if the partial rating area offering phenomenon is driven by market segmentation, then there would be a negative correlation. We develop a novel nonparametric correlation test and apply it to the federal marketplace data. We find strong evidence for a positive correlation of insurers’ entry decisions, suggesting that common cost factors are the main driver for the partial rating area offering phenomenon. To the extent that it is a concern that many counties now have few insurers, our result suggests that it is important to offer insurers subsidies that are tied to county characteristics.

Keywords: Affordable Care Act; Health Insurance Marketplace; Rating Area; Service Area (search for similar items in EconPapers)
JEL-codes: I11 I13 L1 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2018-10-01, Revised 2018-10-01
New Economics Papers: this item is included in nep-ias
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Citations: View citations in EconPapers (1)

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Working Paper: Partial Rating Area Offering in the ACA Marketplaces: Facts, Theory and Evidence (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:18-025

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