Insurance without Commitment: Evidence from the ACA Marketplaces

Rebecca Diamond, Michael J. Dickstein, Timothy McQuade, Petra Persson

NBER Working Paper No. 24668
Issued in May 2018, Revised in April 2021
NBER Program(s):Health Care, Public Economics, Industrial Organization

We study the dynamics of participation and health care consumption in the Affordable Care Act’s health insurance marketplaces. Unlike other health insurance contexts, we find individuals commonly drop coverage midyear–roughly 30% of enrollees exit within nine months of sign-up. While covered, dropouts spend more on health care than in the months before sign-up or after exit. We model the consequences of drop-out on equilibrium premiums and consumer welfare. While dropouts generate a type of adverse selection, the welfare effect from their participation is ambiguous and depends on the relative costs per month of part-year vs. full-year enrollees. In our empirical setting, we find that imposing a penalty that incentivizes participation for at least 3.5 months would lower premium levels and improve overall consumer welfare.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24668