Inertia, Market Power, and Adverse Selection in Health Insurance: Evidence from the ACA Exchanges / Evan Saltzman, Ashley Swanson, Daniel Polsky.

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Saltzman, Evan

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w29097.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We study how inertia interacts with market power and adverse selection in managed competition health insurance markets. We use consumer-level data to estimate a model of the California ACA exchange, in which four firms dominate the market and risk adjustment is in place to manage selection. We estimate high inertia costs, equal to 44% of average premiums. Although eliminating inertia exacerbates adverse selection, it significantly reduces market power such that average premiums decrease 13.2% and annual per-capita welfare increases $902. These effects are substantially smaller in settings without market power and/or risk adjustment. Moreover, converting the ACA's premium-linked subsidies to vouchers mitigates the impact of inertia by reducing market power, whereas reducing high consumer churn in the ACA exchanges increases the impact of inertia by enhancing market power. The impact of inertia is not sensitive to provider network generosity, despite greater consumer attachment to plans with more differentiated provider networks.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w29097 (Browse shelf(Opens below))	Not For Loan

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July 2021.

We study how inertia interacts with market power and adverse selection in managed competition health insurance markets. We use consumer-level data to estimate a model of the California ACA exchange, in which four firms dominate the market and risk adjustment is in place to manage selection. We estimate high inertia costs, equal to 44% of average premiums. Although eliminating inertia exacerbates adverse selection, it significantly reduces market power such that average premiums decrease 13.2% and annual per-capita welfare increases $902. These effects are substantially smaller in settings without market power and/or risk adjustment. Moreover, converting the ACA's premium-linked subsidies to vouchers mitigates the impact of inertia by reducing market power, whereas reducing high consumer churn in the ACA exchanges increases the impact of inertia by enhancing market power. The impact of inertia is not sensitive to provider network generosity, despite greater consumer attachment to plans with more differentiated provider networks.