Zero-Price Effects in Health Insurance: Evidence from Colorado

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See all articles by Coleman Drake

Coleman Drake

University of Pittsburgh Graduate School of Public Health

Sih-Ting Cai

University of Pittsburgh Graduate School of Public Health

David Anderson

Duke-Margolis Center for Health Policy

Daniel W. Sacks

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: December 8, 2020

Abstract

The Affordable Care Act’s premium tax credit subsidies provide millions of eligible enrollees with the option to purchase zero-premium health insurance plans, but millions more do not have this option. What difference does a premium of zero make, relative to a slightly positive one? We use regression discontinuity designs to examine zero-price effects in health insurance coverage take-up, plan choice, and coverage duration using administrative data from Colorado’s Health Insurance Marketplace from 2016 through 2019. Unlike previous studies, we isolate zero-price effects from high price sensitivity near zero using rich variation from Marketplace premium tax credits. We find no discontinuity in insurance choices when premiums increase from to a slightly positive amount, suggesting that zero is not a special price for customers. However, zero-premiums plans increase on-time enrollment, leading to longer coverage duration by reducing the transaction cost of making an initial premium payment. As low-income customers are especially sensitive to this transaction cost, making zero-premium plans available may increase targeting efficiency.

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

JEL Classification: I11, I13, D90, I18

Suggested Citation

Drake, Coleman and Cai, Sih-Ting and Anderson, David and Sacks, Daniel W., Zero-Price Effects in Health Insurance: Evidence from Colorado (December 8, 2020). Available at SSRN: https://ssrn.com/abstract=

Coleman Drake (Contact Author)

University of Pittsburgh Graduate School of Public Health ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

HOME PAGE: http://https://www.publichealth.pitt.edu/home/directory/coleman-drake

Sih-Ting Cai

University of Pittsburgh Graduate School of Public Health ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

David Anderson

Duke-Margolis Center for Health Policy ( email )

201 Science Drive
Box 90312
Durham, NC 27708-9985
United States

HOME PAGE: http://https://healthpolicy.duke.edu/people/david-anderson

Daniel W. Sacks

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

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