Research / BFI Working PaperAug 16, 2017

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. Consequently, counterfactuals show that providing more generous subsidies to this group leads to equilibria where all buyers are better off and per-person public spending is lower.

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