Working Paper: NBER ID: w17938
Authors: Daniel L. McFadden; Carlos E. Noton; Pau Olivella
Abstract: This expository paper describes the factors that contribute to failure of health insurance markets, and the regulatory mechanisms that have been and can be used to combat these failures. Standardized contracts and creditable coverage mandates are discussed, along with premium support, enrollment mandates, guaranteed issue, and risk adjustment, as remedies for selection-related market damage. An overall conclusion of the paper is that the design and management of creditable coverage mandates are likely to be key determinants of the performance of the health insurance exchanges that are a core provision of the PPACA of 2010. Enrollment mandates, premium subsidies, and risk adjustment can improve the stability and relative efficiency of the exchanges, but with carefully designed creditable coverage mandates are not necessarily critical for their operation.
Keywords: health insurance; market failure; adverse selection; regulatory mechanisms
JEL Codes: D4; D62; I13; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| private information (D82) | adverse selection (D82) |
| adverse selection (D82) | market unraveling (G10) |
| standardized contracts (L14) | reduce adverse selection (D82) |
| enrollment mandates (I13) | reduce adverse selection (D82) |
| premium subsidies (G52) | reduce adverse selection (D82) |
| standardized contracts (L14) | stabilize health insurance markets (G52) |
| enrollment mandates (I13) | stabilize health insurance markets (G52) |
| premium subsidies (G52) | stabilize health insurance markets (G52) |
| reduce adverse selection (D82) | improve market efficiency (G14) |
| improve market efficiency (G14) | overall market outcomes (L19) |