American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Price-Linked Subsidies and Imperfect Competition in Health Insurance
American Economic Journal: Economic Policy
(pp. 279–311)
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 postsubsidy 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 percent, and much more in less competitive markets. For cost uncertainty reasonable in a mature market, these losses outweigh the benefits of price-linking.Citation
Jaffe, Sonia, and Mark Shepard. 2020. "Price-Linked Subsidies and Imperfect Competition in Health Insurance." American Economic Journal: Economic Policy 12 (3): 279–311. DOI: 10.1257/pol.20180198Additional Materials
JEL Classification
- G22 Insurance; Insurance Companies; Actuarial Studies
- H75 State and Local Government: Health; Education; Welfare; Public Pensions
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health