Using Taxes to Support Multiple Health Insurance Risk Pools

5 Pages Posted: 19 Sep 2017

See all articles by David Gamage

David Gamage

Indiana University Maurer School of Law

Darien Shanske

University of California, Davis - School of Law

Date Written: August 28, 2017

Abstract

In most markets, it is considered desirable for consumers to have more choices. But health insurance regulation is different. When it comes to health insurance, giving consumers more choices can result in the market collapsing — leaving the sickest and most needy consumers without any good choices at all. To mitigate this problem, the Affordable Care Act’s Exchanges were designed around maintaining a single exchange-based risk pool. However, one problem with this approach taken by the Affordable Care Act is that the regulations designed to maintain the single exchange-based risk pool have the side effect of limiting some potentially positive aspects of consumer choice and provider competition.

Might there be a way for us to have our cake and eat it too? Could reforms limit adverse selection while also fostering more innovation through market incentives? Our tentative answer is yes. This essay explains how targeted use of taxes and subsidies, by either the federal government or by state governments, could support multiple health insurance risk pools while still limiting adverse selection.

Keywords: affordable care act, adverse selection, health care tax

JEL Classification: K34, I11

Suggested Citation

Gamage, David and Shanske, Darien, Using Taxes to Support Multiple Health Insurance Risk Pools (August 28, 2017). State Tax Notes, Vol. 85, No. 9, 2017. Available at SSRN: https://ssrn.com/abstract=3036747

David Gamage (Contact Author)

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States

HOME PAGE: http://www.law.indiana.edu/about/people/bio.php?name=gamage-david

Darien Shanske

University of California, Davis - School of Law ( email )

400 Mrak Hall Dr
Davis, CA CA 95616-5201

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