How Does Medicaid Expansion Affect Premiums in the Health Insurance Marketplaces? New Evidence from Late Adoption in Pennsylvania and Indiana

This paper studies the impact of the recent Affordable Care Act Medicaid expansion on premiums in the health insurance marketplaces. Exploiting the late adoption of the Medicaid expansion in Pennsylvania and Indiana in 2015, I use both difference-in-differences and the synthetic control method to estimate the effect of the Medicaid expansion on marketplace premiums. The preferred estimates indicate that Medicaid expansion is associated with statistically significant lower premiums for gold plans (17 percent) and the second-lowest-priced silver plans (25 percent). I also find evidence that Medicaid expansion decreases average premiums for other silver and bronze plans by about 16 and 13 percent, respectively. Overall, these findings are consistent with lower expected medical cost after Medicaid expansion removed certain low-income individuals from the marketplace risk pools.