Working Paper: NBER ID: w24668
Authors: Rebecca Diamond; Michael J. Dickstein; Timothy McQuade; Petra Persson
Abstract: We study the dynamics of participation and health care consumption in the Affordable Care Act’s health insurance marketplaces. Unlike other health insurance contexts, we find individuals commonly drop coverage midyear–roughly 30% of enrollees exit within nine months of sign-up. While covered, dropouts spend more on health care than in the months before sign-up or after exit. We model the consequences of drop-out on equilibrium premiums and consumer welfare. While dropouts generate a type of adverse selection, the welfare effect from their participation is ambiguous and depends on the relative costs per month of part-year vs. full-year enrollees. In our empirical setting, we find that imposing a penalty that incentivizes participation for at least 3.5 months would lower premium levels and improve overall consumer welfare.
Keywords: Affordable Care Act; health insurance; dropout behavior; consumer welfare
JEL Codes: H4; H51; I13; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| dropout behavior (I21) | consumer welfare (D69) |
| dropout behavior (I21) | insurance premiums (G52) |
| dropout behavior (I21) | adverse selection (D82) |
| adverse selection (D82) | insurance premiums (G52) |
| dropout behavior (I21) | health care spending (H51) |
| insurance premiums (G52) | consumer welfare (D69) |
| dropout behavior (I21) | market efficiency (G14) |
| penalty for maintaining insurance for 36 months (G52) | premiums (G22) |
| penalty for maintaining insurance for 36 months (G52) | consumer welfare (D69) |