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Insurance without Commitment: Evidence from the ACA Marketplaces

Author

Listed:
  • Diamond, Rebecca

    (Stanford U)

  • Dickstein, Michael J.

    (New York U)

  • McQuade, Timothy

    (Stanford U)

  • Persson, Petra

    (Stanford U)

Abstract

We study the dynamics of participation and health care consumption in the Affordable Care Act's health insurance marketplaces. Unlike other health insurance contexts, we find individuals commonly drop coverage midyear--roughly 30% of enrollees exit within nine months of sign-up. While covered, dropouts spend more on health care than in the months before sign-up or after exit. We model the consequences of drop-out on equilibrium premiums and consumer welfare. While dropouts generate a type of adverse selection, the welfare effect from their participation is ambiguous and depends on the relative costs per month of part-year vs. full-year enrollees. In our empirical setting, we find that imposing a penalty that incentivizes participation for at least 3.5 months would lower premium levels and improve overall consumer welfare.

Suggested Citation

  • Diamond, Rebecca & Dickstein, Michael J. & McQuade, Timothy & Persson, Petra, 2020. "Insurance without Commitment: Evidence from the ACA Marketplaces," Research Papers 3930, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3930
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    File URL: https://www.gsb.stanford.edu/faculty-research/working-papers/insurance-without-commitment-evidence-aca-marketplaces
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    Cited by:

    1. Lin, Haizhen & Sacks, Daniel W., 2019. "Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment," Journal of Public Economics, Elsevier, vol. 175(C), pages 29-43.

    More about this item

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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