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More Insurers Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces

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  • Leemore Dafny

    (Kellogg School of Management, Northwestern University, and the National Bureau of Economic Research)

  • Jonathan Gruber

    (Massachusetts Institute of Technology and the National Bureau of Economic Research)

  • Christopher Ody

    (Kellogg School of Management, Northwestern University)

Abstract

First-year insurer participation in the Health Insurance Marketplaces (HIMs) established by the Affordable Care Act is limited in many areas of the country. There are 3.9 participants, on (population-weighted) average, in the 395 ratings areas spanning the 34 states with federally facilitated marketplaces (FFMs). Using data on the plans offered in the FFMs, together with predicted market shares for HIM participants (estimated using 2011 insurer-state market shares in the individual insurance market), we study the impact of competition on premiums. We exploit variation in ratings-area-level competition induced by UnitedHealthcare's decision not to participate in any of the FFMs. We estimate that the second-lowest-price silver premium (which is directly linked to federal subsidies) would have decreased by 5.4 percent, on average, had UnitedHealthcare participated. If all insurers active in each state's individual insurance market in 2011 had participated in all ratings areas in that state's HIM, we estimate this key premium would be 11.1% lower and 2014 federal subsidies would be reduced by $1.7 billion. © 2015 American Society of Health Economists and Massachusetts Institute of Technology

Suggested Citation

  • Leemore Dafny & Jonathan Gruber & Christopher Ody, 2015. "More Insurers Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces," American Journal of Health Economics, University of Chicago Press, vol. 1(1), pages 53-81, Winter.
    • Handle: RePEc:ucp:amjhec:v:1:y:2015:i:1:p:53-81
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    Cited by:

    1. Trish, Erin E. & Herring, Bradley J., 2015. "How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums?," Journal of Health Economics, Elsevier, vol. 42(C), pages 104-114.
    2. Kurt Lavetti & Thomas DeLeire & Nicolas R. Ziebarth, 2023. "How do low‐income enrollees in the Affordable Care Act marketplaces respond to cost‐sharing?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(1), pages 155-183, March.
    3. Sonia Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Health Insurance Markups," Working Papers 2017-084, Human Capital and Economic Opportunity Working Group.
    4. Jean Marie Abraham & Coleman Drake & Jeffrey S. McCullough & Kosali Simon, 2017. "What drives insurer participation and premiums in the Federally-Facilitated Marketplace?," International Journal of Health Economics and Management, Springer, vol. 17(4), pages 395-412, December.
    5. Lizhong Peng, 2017. "How Does Medicaid Expansion Affect Premiums in the Health Insurance Marketplaces? New Evidence from Late Adoption in Pennsylvania and Indiana," American Journal of Health Economics, MIT Press, vol. 3(4), pages 550-576, Fall.
    6. Frederick, Joshua D. & Fung, Derrick W.H. & Yang, Charles C. & Yeh, Jason J.H., 2022. "Individual health insurance reforms in the U.S.: Expanding interstate markets, Medicare for all, or Medicaid for all?," European Journal of Operational Research, Elsevier, vol. 297(2), pages 753-765.
    7. Jason Abaluck & Jonathan Gruber, 2016. "Improving the Quality of Choices in Health Insurance Markets," NBER Working Papers 22917, National Bureau of Economic Research, Inc.
    8. Amanda Kowalski, 2014. "The Early Impact of the Affordable Care Act, State by State," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(2 (Fall)), pages 277-355.
    9. Padmaja Ayyagari, 2019. "Health Insurance and Early Retirement Plans: Evidence from the Affordable Care Act," American Journal of Health Economics, University of Chicago Press, vol. 5(4), pages 533-560, Fall.
    10. Hill, Nicholas & Wagner, Mathis, 2021. "Heterogeneous effects of consolidation on premiums in Medicare Part D," Journal of Health Economics, Elsevier, vol. 80(C).
    11. Mark Pauly & Scott Harrington & Adam Leive, 2015. ""Sticker Shock" in Individual Insurance under Health Reform?," American Journal of Health Economics, University of Chicago Press, vol. 1(4), pages 494-514, Fall.
    12. Daniel W. Sacks & Khoa Vu & Tsan-Yao Huang & Pinar Karaca-Mandic, 2017. "How do insurance firms respond to financial risk sharing regulations? Evidence from the Affordable Care Act," NBER Working Papers 24129, National Bureau of Economic Research, Inc.
    13. Karlsson, Martin & Klohn, Florian & Rickayzen, Ben, 2018. "The role of heterogeneous parameters for the detection of selection in insurance contracts," Insurance: Mathematics and Economics, Elsevier, vol. 83(C), pages 110-121.
    14. Pelech, Daria, 2018. "Paying more for less? Insurer competition and health plan generosity in the Medicare Advantage program," Journal of Health Economics, Elsevier, vol. 61(C), pages 77-92.
    15. Maria Polyakova & Stephen P. Ryan, 2019. "Subsidy Targeting with Market Power," NBER Working Papers 26367, National Bureau of Economic Research, Inc.
    16. Daniel W. Sacks & Khoa Vu & Tsan‐Yao Huang & Pinar Karaca‐Mandic, 2021. "How do insurance firms respond to financial risk sharing regulations? Evidence from the Affordable Care Act," Health Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 1443-1460, June.
    17. Benjamin R. Handel & Jonathan T. Kolstad, 2021. "The Affordable Care Act After a Decade: Industrial Organization of the Insurance Exchanges," NBER Working Papers 29178, National Bureau of Economic Research, Inc.
    18. Sonia P. Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Imperfect Competition in Health Insurance," NBER Working Papers 23104, National Bureau of Economic Research, Inc.
    19. Pelech, Daria, 2017. "Dropped out or pushed out? Insurance market exit and provider market power in Medicare Advantage," Journal of Health Economics, Elsevier, vol. 51(C), pages 98-112.
    20. Brett Lissenden, 2017. "Three's a Crowd? The Effect of Insurer Participation on Premiums and Cost-Sharing Parameters in the Initial Years of the ACA Marketplaces," American Journal of Health Economics, MIT Press, vol. 3(4), pages 477-506, Fall.

    More about this item

    Keywords

    HIMs; Affordable Care Act; FFMs; premium;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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