Inertia, Market Power, and Adverse Selection in Health Insurance: Evidence from the ACA Exchanges

64 Pages Posted: 23 Aug 2021 Last revised: 1 Jul 2022

See all articles by Evan Saltzman

Evan Saltzman

Emory University - Department of Economics

Ashley Swanson

University of Wisconsin - Madison - Department of Economics; NBER

Daniel Polsky

Bloomberg School of Public Health, Department of Health Policy and Management, Johns Hopkins University; Johns Hopkins University - Carey Business School

Multiple version iconThere are 2 versions of this paper

Date Written: May 17, 2022

Abstract

We study how inertia interacts with market power and adverse selection in health insurance.
We incorporate inertia into a model of plan selection and price competition, and estimate it using
data from the California ACA exchange. We estimate inertia costs equaling 43% of average
premiums. Our simulations indicate that inertia exacerbates market power, but has minimal
interaction with selection. Eliminating inertia reduces average premiums by 9.5%. Maintaining
premium-linked subsidies or reducing consumer churn increases the impact of inertia by
enhancing market power. Provider network attachment is an important impediment to plan
switching, but substantial inertia remains after accounting for networks.

Keywords: ACA, managed competition, market power, inertia, adverse selection

JEL Classification: G22, I11, I13, L1

Suggested Citation

Saltzman, Evan and Swanson, Ashley and Polsky, Daniel, Inertia, Market Power, and Adverse Selection in Health Insurance: Evidence from the ACA Exchanges (May 17, 2022). Available at SSRN: https://ssrn.com/abstract=3908686 or http://dx.doi.org/10.2139/ssrn.3908686

Evan Saltzman

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

Ashley Swanson (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Daniel Polsky

Bloomberg School of Public Health, Department of Health Policy and Management, Johns Hopkins University ( email )

624 North Broadway
Baltimore, MD 21205
United States

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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