Job Market Paper
How does Insurance Competition Affect Medical Consumption? (click for draft)
Competition in insurance markets affects not only the monthly premium but also the cost-sharing terms---e.g. copays and coinsurance rates--- which may affect a patient's medical decisions and thus the patient's health outcomes. However, there is little evidence on how competition affects medical consumption through these cost-sharing terms. Using medical claims data linked to insurance products choices, I estimate a model in which consumers select an insurance plan and make medical consumption decisions given the cost-sharing terms of their insurance. Firms compete by setting both the premium and the cost-sharing terms of their products. I find that a $10 increase in the primary care copay leads to a 5.4% decrease in medical consumption and a 0.1 percentage point increase in inpatient mortality. Further, less competition leads to higher levels of cost-sharing on average. Through this channel, a reduction in competition via a merger leads to up to a 4% increase in the primary care copay, an average reduction in medical spending of $17 per person, and an additional six inpatient deaths per year. At estimates of the statistical value of a life, the reduction in spending is more than outweighed by the cost of additional deaths.
Competition in insurance markets affects not only the monthly premium but also the cost-sharing terms---e.g. copays and coinsurance rates--- which may affect a patient's medical decisions and thus the patient's health outcomes. However, there is little evidence on how competition affects medical consumption through these cost-sharing terms. Using medical claims data linked to insurance products choices, I estimate a model in which consumers select an insurance plan and make medical consumption decisions given the cost-sharing terms of their insurance. Firms compete by setting both the premium and the cost-sharing terms of their products. I find that a $10 increase in the primary care copay leads to a 5.4% decrease in medical consumption and a 0.1 percentage point increase in inpatient mortality. Further, less competition leads to higher levels of cost-sharing on average. Through this channel, a reduction in competition via a merger leads to up to a 4% increase in the primary care copay, an average reduction in medical spending of $17 per person, and an additional six inpatient deaths per year. At estimates of the statistical value of a life, the reduction in spending is more than outweighed by the cost of additional deaths.
Working Papers
Market Power in the Presence of Adverse Selection, July 2021
In the presence of adverse selection, firms have an incentive to offer products that appeal to low-cost consumers and lead high-cost consumers to purchase insurance elsewhere. This incentive is worst in highly competitive markets and absent in a monopoly. Through this interaction, regulations to address adverse selection and competition policy should be considered complements. This paper estimates a model of imperfect competition in the non-group health insurance market that directly characterizes the relationship between adverse selection and market power using novel choice data from a private online marketplace and a risk prediction model. The largest welfare cost comes from high markups. Current policies targeting adverse selection are successful in reducing the welfare cost of extensive margin selection and inefficient sorting. However, these policies also increase the potential harm of mergers, and in the most concentrated markets, the firms recapture much of the added surplus through higher markups.
Sources of Inertia in Health Plan Choice in the Individual Health Insurance Market (with Coleman Drake and Bryan Dowd),
March 2020 (revise & resubmit, Journal of Public Economics)
We decompose inertia in health plan choice in the individual health insurance market into three sources: inattention to alternatives, hassle costs related to switching, and tastes for provider continuity. Administrative 2014-2018 data from California’s Health Insurance Marketplace show that 83% of returning households select their default health plans. Using a default-consideration framework, we find that roughly three quarters of default plan selections are due to inertia, nearly 90% of which are due to inattention, hassle costs, and their interaction with one another. We validate our identification of inattention using information on whether households made active plan selections.
The Demand for Individual Insurance: Evidence from a Private Online Marketplace (with Roger Feldman and Stephen Parente),
May 2021 (forthcoming, American Journal of Health Economics)
We use a novel data set from a private online marketplace to estimate the demand for individual health insurance among a set comprising many high-income consumers across 18 states. We find that consumers earning more than 4 times the federal poverty level are willing to pay $30 to $135 per month to increase the actuarial value of their insurance by 10 percentage points, much less than low-income consumers. High-income consumers are also less likely to forgo insurance as a result of a premium increase. These results are important for understanding the effect of health reform proposals targeting higher-income populations.
In the presence of adverse selection, firms have an incentive to offer products that appeal to low-cost consumers and lead high-cost consumers to purchase insurance elsewhere. This incentive is worst in highly competitive markets and absent in a monopoly. Through this interaction, regulations to address adverse selection and competition policy should be considered complements. This paper estimates a model of imperfect competition in the non-group health insurance market that directly characterizes the relationship between adverse selection and market power using novel choice data from a private online marketplace and a risk prediction model. The largest welfare cost comes from high markups. Current policies targeting adverse selection are successful in reducing the welfare cost of extensive margin selection and inefficient sorting. However, these policies also increase the potential harm of mergers, and in the most concentrated markets, the firms recapture much of the added surplus through higher markups.
Sources of Inertia in Health Plan Choice in the Individual Health Insurance Market (with Coleman Drake and Bryan Dowd),
March 2020 (revise & resubmit, Journal of Public Economics)
We decompose inertia in health plan choice in the individual health insurance market into three sources: inattention to alternatives, hassle costs related to switching, and tastes for provider continuity. Administrative 2014-2018 data from California’s Health Insurance Marketplace show that 83% of returning households select their default health plans. Using a default-consideration framework, we find that roughly three quarters of default plan selections are due to inertia, nearly 90% of which are due to inattention, hassle costs, and their interaction with one another. We validate our identification of inattention using information on whether households made active plan selections.
The Demand for Individual Insurance: Evidence from a Private Online Marketplace (with Roger Feldman and Stephen Parente),
May 2021 (forthcoming, American Journal of Health Economics)
We use a novel data set from a private online marketplace to estimate the demand for individual health insurance among a set comprising many high-income consumers across 18 states. We find that consumers earning more than 4 times the federal poverty level are willing to pay $30 to $135 per month to increase the actuarial value of their insurance by 10 percentage points, much less than low-income consumers. High-income consumers are also less likely to forgo insurance as a result of a premium increase. These results are important for understanding the effect of health reform proposals targeting higher-income populations.
Publications
Upward Pricing Pressure as a Predictor of Merger Price Effects (with Nathan Miller, Marc Remer, and Gloria Sheu), International Journal of Industrial Organization, 52, 2017: 216-247
Pass-Through and the Prediction of Merger Price Effects (with Nathan Miller, Marc Remer, and Gloria Sheu), Journal of Industrial Economics, 64(4) 201, 2016: 683-709.
Pass-Through and the Prediction of Merger Price Effects (with Nathan Miller, Marc Remer, and Gloria Sheu), Journal of Industrial Economics, 64(4) 201, 2016: 683-709.
