Working Paper: NBER ID: w25827
Authors: Pietro Tebaldi; Alexander Torgovitsky; Hanbin Yang
Abstract: We develop a new nonparametric approach for discrete choice and use it to analyze the demand for health insurance in the California Affordable Care Act marketplace. The model allows for endogenous prices and instrumental variables, while avoiding parametric functional form assumptions about the unobserved components of utility. We use the approach to estimate bounds on the effects of changing premiums or subsidies on coverage choices, consumer surplus, and government spending on subsidies. We find that a $10 decrease in monthly premium subsidies would cause a decline of between 1.8% and 6.7% in the proportion of subsidized adults with coverage. The reduction in total annual consumer surplus would be between $62 and $74 million, while the savings in yearly subsidy outlays would be between $207 and $602 million. We estimate the demand impacts of linking subsidies to age, finding that shifting subsidies from older to younger buyers would increase average consumer surplus, with potentially large im- pacts on enrollment. We also estimate the consumer surplus impact of removing the highly-subsidized plans in the Silver metal tier, where we find that a nonparametric model is consistent with a wide range of possibilities. We find that comparable mixed logit models tend to yield price sensitivity estimates towards the lower end of the non-parametric bounds, while producing consumer surplus impacts that can be both higher and lower than the nonparametric bounds depending on the specification of random coefficients.
Keywords: health insurance; demand estimation; nonparametric methods; Affordable Care Act
JEL Codes: C14; C3; C5; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 10% decrease in monthly premium subsidies (G52) | decline of between 18% and 67% in the proportion of subsidized adults with coverage (I13) |
| linking subsidies to age (J14) | increase average consumer surplus (D11) |
| shifting subsidies from older to younger buyers (H23) | significant impact on enrollment (I23) |
| removing highly subsidized plans in the silver tier (I18) | consumer surplus impact (F61) |
| comparable mixed logit models (C35) | lower price sensitivity estimates (D11) |