Working Paper: NBER ID: w24129
Authors: Daniel W. Sacks; Khoa Vu; Tsanyao Huang; Pinar Karacamandic
Abstract: We investigate the effect of the Risk Corridors (RC) program on premiums and insurer participation in the Affordable Care Act (ACA)’s Health Insurance Marketplaces. The RC program, which was defunded ahead of coverage year 2016, and ended in 2017, is a risk sharing mechanism: it makes payments to insurers whose costs are high relative to their revenue, and collects payments from insurers whose costs are relatively low. We show theoretically that the RC program creates strong incentives to lower premiums for some insurers. Empirically, we find that insurers who claimed RC payments in 2015, before defunding, had greater premium increases in 2017, after the program ended. Insurance markets in which more insurers made RC claims experienced larger premium increases after the program ended, reflecting equilibrium effects. We do not find any evidence that insurers with larger RC claims in 2015 were less likely to participate in the ACA Marketplaces in 2016 and 2017. Overall we find that the end of the RC program significantly contributed to premium growth.
Keywords: Affordable Care Act; risk corridors; insurance premiums; insurer participation
JEL Codes: I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| risk corridor program (G52) | premiums (G22) |
| risk corridor program (G52) | insurer participation (G52) |
| rc claims (R50) | premiums (G22) |
| market-level rc exposure (G19) | premium increases (G52) |
| number of insurers making rc claims (G22) | premiums (G22) |
| end of rc program (C87) | premium growth (G52) |
| rc claims in competitive markets (D40) | premium growth (G52) |