IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v105y2015i3p1030-66.html
   My bibliography  Save this article

Adverse Selection and an Individual Mandate: When Theory Meets Practice

Author

Listed:
  • Martin B. Hackmann
  • Jonathan T. Kolstad
  • Amanda E. Kowalski

Abstract

We develop a model of selection that incorporates a key element of recent health reforms: an individual mandate. Using data from Massachusetts, we estimate the parameters of the model. In the individual market for health insurance, we find that premiums and average costs decreased significantly in response to the individual mandate. We find an annual welfare gain of 4.1 percent per person or $51.1 million annually in Massachusetts as a result of the reduction in adverse selection. We also find smaller post-reform markups. (JEL D82, G22, H75, I13)

Suggested Citation

  • Martin B. Hackmann & Jonathan T. Kolstad & Amanda E. Kowalski, 2015. "Adverse Selection and an Individual Mandate: When Theory Meets Practice," American Economic Review, American Economic Association, vol. 105(3), pages 1030-1066, March.
  • Handle: RePEc:aea:aecrev:v:105:y:2015:i:3:p:1030-66
    Note: DOI: 10.1257/aer.20130758
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.20130758
    Download Restriction: no

    File URL: https://www.aeaweb.org/aer/data/10503/20130758_data.zip
    Download Restriction: no

    File URL: https://www.aeaweb.org/aer/ds/10503/20130758_ds.zip
    Download Restriction: no

    File URL: https://www.aeaweb.org/aer/app/10503/20130756_app.pdf
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Liran Einav & Amy Finkelstein & Jonathan Levin, 2010. "Beyond Testing: Empirical Models of Insurance Markets," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 311-336, September.
    2. M. Kate Bundorf & Jonathan Levin & Neale Mahoney, 2012. "Pricing and Welfare in Health Plan Choice," American Economic Review, American Economic Association, vol. 102(7), pages 3214-3248, December.
    3. Andrew Beauchamp & Mathis Wagner, 2012. "Dying to Retire: Adverse Selection and Welfare in Social Security," Boston College Working Papers in Economics 818, Boston College Department of Economics, revised 15 Aug 2013.
    4. Jeffrey Clemens, 2015. "Regulatory Redistribution in the Market for Health Insurance," American Economic Journal: Applied Economics, American Economic Association, vol. 7(2), pages 109-134, April.
    5. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
    6. Kolstad, Jonathan T. & Kowalski, Amanda E., 2016. "Mandate-based health reform and the labor market: Evidence from the Massachusetts reform," Journal of Health Economics, Elsevier, vol. 47(C), pages 81-106.
    7. Keith Marzilli Ericson & Judd B. Kessler, 2013. "The Articulation Effect of Government Policy: Health Insurance Mandates Versus Taxes," NBER Working Papers 18913, National Bureau of Economic Research, Inc.
    8. Martin B. Hackmann & Jonathan T. Kolstad & Amanda E. Kowalski, 2012. "Health Reform, Health Insurance, and Selection: Estimating Selection into Health Insurance Using the Massachusetts Health Reform," American Economic Review, American Economic Association, vol. 102(3), pages 498-501, May.
    9. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    10. Liran Einav & Amy Finkelstein & Paul Schrimpf, 2010. "Optimal Mandates and the Welfare Cost of Asymmetric Information: Evidence From the U.K. Annuity Market," Econometrica, Econometric Society, vol. 78(3), pages 1031-1092, May.
    11. David M. Cutler & Jonathan Gruber, 1996. "Does Public Insurance Crowd out Private Insurance?," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 391-430.
    12. Liran Einav & Amy Finkelstein & Mark R. Cullen, 2010. "Estimating Welfare in Insurance Markets Using Variation in Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 877-921.
    13. Kolstad, Jonathan T. & Kowalski, Amanda E., 2012. "The impact of health care reform on hospital and preventive care: Evidence from Massachusetts," Journal of Public Economics, Elsevier, vol. 96(11), pages 909-929.
    14. Leemore S. Dafny, 2010. "Are Health Insurance Markets Competitive?," American Economic Review, American Economic Association, vol. 100(4), pages 1399-1431, September.
    15. Keith M. Marzilli Ericson & Amanda Starc, 2015. "Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange," The Review of Economics and Statistics, MIT Press, vol. 97(3), pages 667-682, July.
    16. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, vol. 93(1), pages 113-132, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:105:y:2015:i:3:p:1030-66. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.