Full Citation

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

Citation Type: Working Paper

Publication Year: 2017

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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 tradeoffs 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://www.nber.org/papers/w23104

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Authors: Jaffe, Sonia; Shepard, Mark

Series Title: NBER Working Paper Series

Publication Number: 23104

Institution: NBER

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Publisher Location: Cambridge, MA

Data Collections: IPUMS USA

Topics: Population Health and Health Systems

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