Insurance Without Commitment: Evidence from the ACA Marketplaces

72 Pages Posted: 4 Jun 2018 Last revised: 28 May 2022

See all articles by Rebecca Diamond

Rebecca Diamond

Stanford Graduate School of Business

Michael Dickstein

Stanford University

Timothy McQuade

Stanford University

Petra Persson

Stanford University; Research Institute of Industrial Economics (IFN)

Date Written: May 2018

Abstract

We study the dynamics of participation and health care consumption in the Affordable Care Act’s health insurance marketplaces. Unlike other health insurance contexts, we find individuals commonly drop coverage midyear–roughly 30% of enrollees exit within nine months of sign-up. While covered, dropouts spend more on health care than in the months before sign-up or after exit. We model the consequences of drop-out on equilibrium premiums and consumer welfare. While dropouts generate a type of adverse selection, the welfare effect from their participation is ambiguous and depends on the relative costs per month of part-year vs. full-year enrollees. In our empirical setting, we find that imposing a penalty that incentivizes participation for at least 3.5 months would lower premium levels and improve overall consumer welfare.

Suggested Citation

Diamond, Rebecca and Dickstein, Michael and McQuade, Timothy and Persson, Petra, Insurance Without Commitment: Evidence from the ACA Marketplaces (May 2018). NBER Working Paper No. w24668, Available at SSRN: https://ssrn.com/abstract=3190002

Rebecca Diamond (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Michael Dickstein

Stanford University ( email )

No Address Available

Timothy McQuade

Stanford University ( email )

Stanford, CA 94305
United States

Petra Persson

Stanford University ( email )

Stanford, CA 94305
United States

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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