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Title: Price-Linked Subsidies and Imperfect Competition in Health Insurance

Citation Type: Miscellaneous

Publication Year: 2018

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Abstract: Policymakers subsidizing health insurance often face uncertainty about future market prices. We study the implications of one policy response: linking subsidies to prices, to target a given post-subsidy premium. We show that these price-linked subsidies weaken competition, raising prices for the government and/or consumers. However, price-linking also ties subsidies to health care cost shocks, which may be desirable. Evaluating this tradeoff empirically using a model estimated with Massachusetts insurance exchange data, we find that price-linking increases prices 1-6%, and much more in less competitive markets. For cost uncertainty reasonable in a mature market, these losses outweigh the benefits of price-linking.

Url: https://scholar.harvard.edu/files/mshepard/files/price_linked_subsidies_paper.pdf

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Authors: Jaffe, Sonia; Shepard, Mark

Publisher: Harvard University

Data Collections: IPUMS USA

Topics: Population Health and Health Systems

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