More Insurers Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces

Source: Leemore S. Dafny, Jonathan Gruber, Christopher J. Ody, National Bureau of Economic Research (NBER), NBER Working Paper No. w20140, May 2014
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From the abstract:
First-year insurer participation in the Health Insurance Marketplaces (HIMs) established by the Affordable Care Act is limited in many areas of the country. There are 3.9 participants, on (population-weighted) average, in the 395 ratings areas spanning the 34 states with federally facilitated marketplaces (FFMs). Using data on the plans offered in the FFMs, together with predicted market shares for exchange participants (estimated using 2011 insurer-state market shares in the individual insurance market), we study the impact of competition on premiums. We exploit variation in ratings-area-level competition induced by United Healthcare’s decision not to participate in any of the FFMs. We estimate that the second-lowest-price silver premium (which is directly linked to federal subsidies) would have decreased by 5.4 percent, on average, had United participated. If all insurers active in each state’s individual insurance market in 2011 had participated in all ratings areas in that state’s HIM, we estimate this key premium would be 11.1 percent lower and 2014 federal subsidies would be reduced by $1.7 billion.