Working Paper: NBER ID: w19904
Authors: Jeffrey Clemens
Abstract: Community rating regulations equalize the insurance premiums faced by the healthy and the unhealthy. Intended reductions in the unhealthy's premiums can be undone, however, if the healthy forgo coverage. The severity of this adverse selection problem hinges largely on how health care costs are distributed across market participants. Theoretically, I show that Medicaid expansions can combat adverse selection by removing high cost individuals from the relevant risk pool. Empirically, I find that private coverage rates improved significantly in community rated markets when states expanded Medicaid's coverage of relatively unhealthy adults. The effects of Medicaid expansions and community rating regulations are fundamentally linked.
Keywords: health insurance; community rating; Medicaid expansions; adverse selection
JEL Codes: H51; H53; I13; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| community rating regulations (G52) | private insurance coverage rates (G52) |
| Medicaid expansions (I18) | private insurance coverage rates (G52) |
| Medicaid expansions (I18) | adverse selection pressures (D82) |
| community rating regulations (G52) | adverse selection (D82) |
| Medicaid expansions + community rating regulations (I18) | private insurance coverage rates (G52) |