More Insurers Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces

43 Pages Posted: 19 May 2014

See all articles by Leemore S. Dafny

Leemore S. Dafny

Northwestern University - Department of Management & Strategy; National Bureau of Economic Research (NBER)

Jonathan Gruber

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Christopher J. Ody

Northwestern University - Kellogg School of Management

Date Written: May 2014

Abstract

First-year insurer participation in the Health Insurance Marketplaces (HIMs) established by the Affordable Care Act is limited in many areas of the country. There are 3.9 participants, on (population-weighted) average, in the 395 ratings areas spanning the 34 states with federally facilitated marketplaces (FFMs). Using data on the plans offered in the FFMs, together with predicted market shares for HIM participants (estimated using 2011 insurer-state market shares in the individual insurance market), we study the impact of competition on premiums. We exploit variation in ratings-area-level competition induced by UnitedHealthcare's decision not to participate in any of the FFMs. We estimate that the second-lowest-price silver premium (which is directly linked to federal subsidies) would have decreased by 5.4 percent, on average, had UnitedHealthcare participated. If all insurers active in each state's individual insurance market in 2011 had participated in all ratings areas in that state's HIM, we estimate this key premium would be 11.1% lower and 2014 federal subsidies would be reduced by $1.7 billion.

Suggested Citation

Dafny, Leemore S. and Gruber, Jonathan and Ody, Christopher J., More Insurers Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces (May 2014). NBER Working Paper No. w20140. Available at SSRN: https://ssrn.com/abstract=2438561

Leemore S. Dafny (Contact Author)

Northwestern University - Department of Management & Strategy ( email )

Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jonathan Gruber

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-355
Cambridge, MA 02142
United States
617-253-8892 (Phone)
617-253-1330 (Fax)

HOME PAGE: http://web.mit.edu/gruberj/www/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christopher J. Ody

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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