Financial Transaction Costs Reduce Benefit Take-Up: Evidence from Zero-Premium Health Plans in Colorado

Abstract

With the passage of the American Recovery Plan Act of 2021, roughly 12 million Americans are eligible to purchase zero-premium Health Insurance Marketplace plans. What difference does a premium of zero make, relative to a slightly positive premium? Using a regression discontinuity design and administrative data from Colorado, we find that zero-premium plans increase coverage substantially, primarily by helping low-income households begin coverage sooner. The main mechanism is eliminating the transaction costs of having to make on-time payments to begin coverage. Transaction costs may be a meaningful barrier to subsidized insurance coverage take-up, particularly for low-income families.

Keywords: Health insurance, Affordable Care Act, zero-price effect, regression discontinuity

JEL Classification: I11, I13, D90, I18