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Regulatory Redistribution in the Market for Health Insurance

  • Jeffrey Clemens

Community rating regulations equalize the insurance premiums faced by the healthy and the unhealthy. Intended reductions in the unhealthy's premiums can be undone, however, if the healthy forgo coverage. The severity of this adverse selection problem hinges largely on how health care costs are distributed across market participants. Theoretically, I show that Medicaid expansions can combat adverse selection by removing high cost individuals from the relevant risk pool. Empirically, I find that private coverage rates improved significantly in community rated markets when states expanded Medicaid's coverage of relatively unhealthy adults. The effects of Medicaid expansions and community rating regulations are fundamentally linked.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19904.

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Date of creation: Feb 2014
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Handle: RePEc:nbr:nberwo:19904
Note: HC HE PE
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