The Impact of Expanding Public Health Insurance on Market-based Insurance Premiums: Roles of Risk-Pool Composition and Size

47 Pages Posted: 23 Nov 2021 Last revised: 31 Jan 2022

See all articles by Qiang Liu

Qiang Liu

Purdue University - Krannert School of Management

Ming Lei

Purdue University - Krannert School of Management

Ting Zhu

Purdue University - Krannert School of Management

Date Written: November 19, 2021

Abstract

The Affordable Care Act (ACA) aims to mitigate Americans’ uninsured crisis by expanding Medicaid and establishing the ACA Marketplace. The Medicaid expansion has a profound impact on Marketplace plan premiums. On the one hand, it lowers the premiums because the expansion drives out the people with lower income from Marketplace plans, resulting in a pool with a lower risk score for these plans. On the other hand, the Medicaid expansion may shrink the pool size of Marketplace plans, resulting in a riskier pool and a higher Marketplace plan premium. Integrating data from multiple sources, we study how these two competing effects vary across markets with different demographics. We find that the premium-reduction effect is less pronounced in more wealthy markets, while the premium-increase effect is less pronounced in more populous markets. We further find that the Medicaid expansion overall decreased the Marketplace premiums, with more reduction for Silver plans than Bronze plans. We also explore how the Medicaid expansion can lower Marketplace premiums indirectly through the change of the market structure. We finally show the heterogeneity of the net impact of the Medicaid expansion on Marketplace premiums across markets. Our results offer important policy and managerial implications.

Keywords: ACA, Medicaid expansion, Marketplace, health insurance, health care marketing, public policy

JEL Classification: I13, I18, D12, M31

Suggested Citation

Liu, Qiang and Lei, Ming and Zhu, Ting, The Impact of Expanding Public Health Insurance on Market-based Insurance Premiums: Roles of Risk-Pool Composition and Size (November 19, 2021). Available at SSRN: https://ssrn.com/abstract=3966751 or http://dx.doi.org/10.2139/ssrn.3966751

Qiang Liu (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Ming Lei

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Ting Zhu

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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