Economics of Health Insurance Exchanges

December 5, 2014
Leemore Dafny, Northwestern University, and Jonathan Gruber, MIT

Natalie Cox, University of Califoria, Berkeley; Benjamin Handel, University of California, Berkeley and NBER; Jonathan Kolstad, University of Pennsylvania and NBER; and Neale Mahoney, University of Chicago and NBER

Messaging and the Mandate: The Impact of Advertising on Health Insurance Enrollment Through Exchanges

Keith Marzilli Ericson, Boston University and NBER, and Amanda Starc, University of Pennsylvania and NBER

Measuring Consumer Valuation of Limited Provider Networks

Ericson and Starc measure the breadth of insurance networks in the Massachusetts health insurance exchange. Using their measures, the authors estimate consumer willingness-to-pay for broad and narrow networks. They find that consumers have a wide range of plans available with dramatically different networks. While consumers value broader networks, their willingness-to-pay is smaller than the brand premium, indicating an additional role for brand preferences. Consumers place additional value on star hospitals, which may affect upstream negotiations. Finally, the researchers find significant geographic heterogeneity in the value of broad networks.

Jonathan Gruber, and Robin McKnight, Wellesley College and NBER

Controlling Health Care Costs Through Limited Network Insurance Plans: Evidence from Massachusetts State Employees (NBER Working Paper 20462)

Recent years have seen enormous growth in limited network plans that restrict patient choice of provider, particularly through state exchanges under the ACA. Opposition to such plans is based on concerns that restrictions on provider choice will harm patient care. Gruber and McKnight explore this issue in the context of the Massachusetts GIC, the insurance plan for state employees, which recently introduced a major financial incentive to choose limited network plans for one group of enrollees and not another. The researchers use a quasi-experimental analysis based on the universe of claims data over a three-year period for GIC enrollees. They find that enrollees are very price sensitive in their decision to enroll in limited network plans, with the state's three month "premium holiday" for limited network plans leading 10% of eligible employees to switch to such plans. The authors find that those who switched spent considerably less on medical care; spending fell by almost 40% for the marginal complier. This reflects both reductions in quantity of services used and prices paid per service. But spending on primary care actually rose for switchers; the reduction in spending came entirely from spending on specialists and on hospital care, including emergency rooms. They find that distance traveled falls for primary care and rises for tertiary care, although there is no evidence of a decrease in the quality of hospitals used by patients. The basic results hold even for the sickest patients, suggesting that limited network plans are saving money by directing care towards primary care and away from downstream spending. The authors find such savings only for those whose primary care physicians are included in limited network plans, however, suggesting that networks that are particularly restrictive on primary care access may fare less well than those that impose only stronger downstream restrictions.

Michael Dickstein and Mark Duggan, Stanford University and NBER, and Joseph Orsini and Pietro Tebaldi, Stanford University

The Effect of Market Size and Composition on Health Insurance Premiums: Evidence from the First Year of the ACA

Under the Affordable Care Act, individual states have discretion in how they define coverage regions, within which insurers must charge the same premium to buyers of the same age, family structure, and smoking status. Dickstein, Duggan, Orsini, and Tebaldi exploit variation in these definitions to investigate whether the size of the coverage region affects market outcomes in the ACA marketplaces. The researchers observe a tradeoff: regions with larger population attract greater numbers of insurers and have lower benchmark premiums, all else equal. However, as regions become more heterogeneous in terms of urbanity or land area, competition declines and prices rise. The consequences for small, rural markets are particularly large. When states combine small counties with neighboring urban areas in a coverage region, rural residents have access to plans from .6 to .8 more insurers, on average, and save between $200 and $300 in annual premiums for the benchmark plan.

Jean Abraham, Coleman Drake, and Jeffrey McCullough, University of Minnesota, and Kosali Simon, Indiana University and NBER

Competing under New Rules of the Game: An Analysis of Insurer Entry and Premiums for Exchange-Based Coverage