Market Segmentation and Competition in Health Insurance

67 Pages Posted: 25 Oct 2021 Last revised: 5 Oct 2022

See all articles by Michael Dickstein

Michael Dickstein

New York University (NYU) - New York University

Kate Ho

National Bureau of Economic Research (NBER); Princeton University - Department of Economics

Nathaniel Mark

U.S. Department of Justice

Date Written: October 2021

Abstract

In the United States, households obtain health insurance through distinct market segments. To explore the economics of this segmentation, we consider the effects of pooling coverage provided through small employers and through the individual marketplace. We model households’ demand for insurance coverage and health care, along with insurers’ price-setting, to predict equilibrium choices, premiums, and health spending. Applying our model to data from Oregon, we find that pooling can both mitigate adverse selection in the individual market and benefit small group households without raising taxpayer costs: premiums in the individual market fall 11% for the most chosen plan type and consumers in both segments gain surplus. Our estimates provide insight into the effects of new regulations that allow employers to shift coverage to the individual market.

Suggested Citation

Dickstein, Michael and Ho, Kate and Ho, Kate and Mark, Nathaniel, Market Segmentation and Competition in Health Insurance (October 2021). NBER Working Paper No. w29406, Available at SSRN: https://ssrn.com/abstract=3949217

Michael Dickstein (Contact Author)

New York University (NYU) - New York University ( email )

Kate Ho

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Nathaniel Mark

U.S. Department of Justice ( email )

United States

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