Working Paper: NBER ID: w22876
Authors: Francesco Decarolis; Andrea Guglielmo
Abstract: Evidence on insurers’ behavior in environments with both risk selection and market power is largely missing. We fill this gap by providing one of the first empirical accounts of how insurers adjust plan features when faced with potential changes in selection. Our strategy exploits a 2012 reform allowing Medicare enrollees to switch to 5-star contracts at anytime. This policy increased enrollment into 5-star contracts, but without risk selection worsening. Our findings show that this is due to 5-star plans lowering both premiums and generosity, thus becoming more appealing for most beneficiaries, but less so for those in worse health conditions.
Keywords: Medicare; Insurance; Selection Risk; 5-star Plans; Enrollment
JEL Codes: I11; I13; I18; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 5-star SEP reform (E69) | decrease in premiums for 5-star plans (G52) |
| 5-star SEP reform (E69) | increase in competition among plans (L13) |
| increase in competition among plans (L13) | decrease in premiums for 5-star plans (G52) |
| 5-star SEP reform (E69) | increase in premiums for plans at the lower end of the distribution (D39) |
| 5-star SEP reform (E69) | worsening of benefits for 5-star plans (MOOP) (I13) |
| worsening of benefits for 5-star plans (MOOP) (I13) | reduction in benefit generosity for poorer health enrollees (I14) |
| 5-star SEP reform (E69) | convergence of characteristics in the market (D40) |
| increase in enrollment in 5-star plans (I18) | decline in quality of benefits offered (J32) |