Becker Friedman Institute
for Research in Economics
The University of Chicago

Research. Insights. Impact. Advancing the Legacy of Chicago Economics.

I11: Analysis of Health Care Markets

Estimating Equilibrium in Health Insurance Exchanges: Price Competition and Subsidy Design under the ACA

Pietro Tebaldi

To design premium subsidies in a health insurance market it is necessary to estimate consumer demand, cost, and study how different subsidy schemes affect insurer's incentives. I combine data on household-level enrollment and plan-level claims from the California Affordable Care Act insurance exchange with a model of insurance demand and insurers' competition to assess equilibrium outcomes under alternative subsidy designs. I estimate that younger households are significantly more price sensitive and cheaper to cover.

Regulated Age-based Pricing in Subsidized Health Insurance: Evidence from the Affordable Care Act

Pietro Tebaldi, Joe Orsini

We study age-rating restrictions in the health insurance marketplaces introduced by the Affordable Care Act. Although age-rating restrictions affect pre-subsidy premiums, participation is primarily driven by subsidy generosity rather than pricing decisions because most buyers are subsidized. By combining pre- and post-reform data on prices and enrollment, we find that age-rating restrictions alter pre-subsidy premiums, with an increase of $230 per year for buyers under 50 years old and a decrease of $900 per year for buyers over 50.

The Evolution of Health Insurer Costs in Massachusetts, 2010-12

Kate Ho, Ariel Pakes, Mark Shepard

We analyze the evolution of health insurer costs in Massachusetts between 2010-2012, paying particular attention to changes in the composition of enrollees. This was a period in which Health Maintenance Organizations (HMOs) increasingly used physician cost control incentives but Preferred Provider Organizations (PPOs) did not. We show that cost growth and its components cannot be understood without accounting for (i) consumers’ switching between plans, and (ii) differences in cost characteristics between new entrants and those leaving the market.

The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured

Zack Cooper, Stuart Craig, Martin Gaynor, and John Van Reenen

We use insurance claims data for 27.6 percent of individuals with private employer-sponsored insurance in the US between 2007 and 2011 to examine the variation in health spending and in hospitals’ transaction prices. We document the variation in hospital prices within and across geographic areas, examine how hospital prices influence the variation in health spending on the privately insured, and analyze the factors associated with hospital price variation. Four key findings emerge.

The Upside-down Economics of Regulated and Otherwise Rigid Prices

Casey Mulligan, Kevin Tsui

A version of the Becker-Lancaster characteristics model featuring quality-quantity tradeoffs reveals a number of surprising market behaviors that can result from price regulations that are imposed on competitive markets for products that have adjustable non-price attributes.  Quality need not clear a competitive market in the same way that prices do, because quality can reduce the willingness to pay for quantity. Producers can benefit from price ceilings, at the expense of consumers.

Labor Markets in Statistics: The Subject Supply Effect in Medical R&D

Anup Malani, Tomas Philipson

Medical research and development (R&D) differs from other R&D because of a unique linkage between output and input markets for medical products: potential consumers of existing medical products are also potential subjects in clinical trials required to develop new products. Therefore, an increase in the quality or reduction in the price of an existing treatment reduces the incentive of patients to participate in trials of new treatments.

Health Care Reform and Health Care Stocks: Evidence from the Supreme Court Ruling

Jonathan Hartley

The Patient Protection and Affordable Care Act of 2010 marked a substantial shift in US healthcare policy. We create an event study observing the returns of healthcare stocks in the S&P 500 when on June 28, 2012 the US Supreme Court very unexpectedly ruled that the individual mandate, a provision requiring that Americans maintain a certain level of health insurance or face a monetary penalty, was not unconstitutional.

Stock Prices and the Doctor Supply: Effect of Medicare Residency Policy on Healthcare Industry Firms

Jonathan Hartley

Funding for medical residencies has been capped by US Congress since the late 1997, and has resultantly become an increasingly limiting factor of the doctor supply in the US. The resulting impact of Medicare residency policy on managed care firms, especially private insurers has been unclear.

Adverse Selection and Switching Costs in Health Insurance Markets: When Nudging Hurts

Benjamin Handel

This paper investigates consumer switching costs in the context of health insurance markets, where adverse selection is a potential concern. Switching costs contribute to poor choices when the market environment changes and consumers do not adjust appropriately. Though previous work has studied the problems of adverse selection and consumer choice inadequacy in isolation, these phenomena interact in a way that directly impacts market outcomes.