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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, MIT Press, vol. 1(1), pages 53-81, Winter.
  • Handle: RePEc:tpr:amjhec:v:1:y:2015:i:1:p:53-81
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    References listed on IDEAS

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    1. repec:mpr:mprres:7375 is not listed on IDEAS
    2. Keith Marzilli Ericson & Amanda Starc, 2012. "Heuristics and Heterogeneity in Health Insurance Exchanges: Evidence from the Massachusetts Connector," American Economic Review, American Economic Association, vol. 102(3), pages 493-497, May.
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    6. Leemore Dafny, 2009. "Estimation and Identification of Merger Effects: An Application to Hospital Mergers," Journal of Law and Economics, University of Chicago Press, vol. 52(3), pages 523-550, August.
    7. Song, Zirui & Landrum, Mary Beth & Chernew, Michael E., 2013. "Competitive bidding in Medicare Advantage: Effect of benchmark changes on plan bids," Journal of Health Economics, Elsevier, vol. 32(6), pages 1301-1312.
    8. Jeffrey R. Kling & Sendhil Mullainathan & Eldar Shafir & Lee C. Vermeulen & Marian V. Wrobel, 2012. "Comparison Friction: Experimental Evidence from Medicare Drug Plans," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 199-235.
    9. Jason Abaluck & Jonathan Gruber, 2013. "Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance," NBER Working Papers 19163, National Bureau of Economic Research, Inc.
    10. 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.
    11. Amanda Starc, 2014. "Insurer pricing and consumer welfare: evidence from Medigap," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 198-220, March.
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    Citations

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    Cited by:

    1. Mark Pauly & Scott Harrington & Adam Leive, 2015. "“Sticker Shock” in Individual Insurance under Health Reform?," American Journal of Health Economics, MIT Press, vol. 1(4), pages 494-514, Fall.
    2. repec:eee:insuma:v:83:y:2018:i:c:p:110-121 is not listed on IDEAS
    3. repec:eee:jhecon:v:61:y:2018:i:c:p:77-92 is not listed on IDEAS
    4. 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.
    5. Sonia Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Health Insurance Markups," Working Papers 2017-084, Human Capital and Economic Opportunity Working Group.
    6. 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.
    7. repec:kap:ijhcfe:v:17:y:2017:i:4:d:10.1007_s10754-017-9215-y is not listed on IDEAS
    8. repec:tpr:amjhec:v:3:y:2017:i:4:p:550-576 is not listed on IDEAS
    9. 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.
    10. repec:tpr:amjhec:v:3:y:2017:i:4:p:477-506 is not listed on IDEAS
    11. Jason Abaluck & Jonathan Gruber, 2016. "Improving the Quality of Choices in Health Insurance Markets," NBER Working Papers 22917, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    HIMs; Affordable Care Act; FFMs; premium;

    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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