Utilization and Competition in the Affordable Care Act’s Health Insurance Marketplaces

This dissertation consists of three essays that analyze healthcare and health insurance markets in relation to healthcare reform, and particularly in the context of the Affordable Care Act (ACA). The first essay uses a nationwide datasets of plan offerings, premiums, and network sizes for the ACA Health Insurance Marketplaces in 2014 to document patterns relating to the effects of competition on premiums and plan network characteristics. The results suggest that greater competition is associated with lower premiums, and that narrow network plans do offer lower premiums. This study also documents heterogeneity along these dimensions across types of insurance plans by ownership structure (not-for-profit, for-profit, and CO-OP). This heterogeneity suggests that a market's overall welfare may depend on the equilibrium market shares and ownership types of the competing firms.

The second and third essays use the State of Colorado's new All-Payer Claims Database (APCD) to examine the welfare consequences in the state's non-group health insurance market, which includes the ACA Marketplace. In the second essay, I test for adverse selection into the ACA Marketplace, and evaluate policies that may help to ameliorate the welfare loss due to adverse selection. Specifically, I use plausibly exogenous premium variation generated by geographic discontinuities to provide evidence of adverse selection, whereby low-cost individuals exit the market in response to rising premiums. Specifically, a 1% increase in premiums causes a 0.8% increase in medical expenditures of the insured population. The estimates indicate that additional premium subsidies, and especially age-targeted subsidies, would enhance welfare. These results offer the first quasi-experimental evidence of selection in the ACA Exchanges.

In the third essay, my co-author Eli Liebman and I extend this analysis to take into account imperfect competition in both health insurance and hospital markets. We bring together the literatures on insurer-hospital bargaining and selection in imperfectly competitive insurance markets to propose a model that captures features salient to the health insurance marketplaces. In particular, although insurance markets tend to be concentrated, the ACA aimed to foster competitive marketplaces, highlighting the importance for understanding the interaction between imperfect competition and selection. The degree of competition among insurance plans affects both selection across plans and on the extensive margin, as well as simultaneously affecting the prices negotiated with providers. We show theoretically that provider market power and adverse selection can interact to amplify the welfare loss due to either one of these two channels individually. We also show why ignoring adverse selection will lead to biased estimates of bargaining parameters in the standard model of hospital-insurer bargaining. Finally, we use medical claims from the State of Colorado, to quantify the welfare consequences for that market. These considerations are relevant for evaluating the effects of policy interventions in the ACA's health insurance marketplaces that affect insurer entry/exit and premium setting.