Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange
We analyze consumer demand and model the effect of pricing regulation under imperfect competition using data from the Massachusetts health insurance exchange. We identify consumer demand using coarse insurer pricing strategies. There is substantial heterogeneity in preferences by consumer type, with younger consumers twice as price sensitive as older consumers. As a result, older consumers face higher markups over costs. Modified community rating links prices for consumers that differ in both costs and preferences. Constrained prices are not simply the population-weighted average of unconstrained prices, because community rating changes the marginal consumer firms face. Tightening rating regulations transfers resources from low cost to high cost consumers, but also reduces firm profits and increases overall consumer surplus. We use our model to examine other insurance regulations. For instance, minimum loss ratios (designed to limit firm profits) will also alter the transfers between consumers. Moreover, risk adjustment will be insufficient to equalize prices across consumer types, as markups still differ. As a result, without a mandate, the market can unravel due to differences in preferences alone
|Date of creation:||May 2012|
|Publication status:||published as 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.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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