Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-28T01:11:24.242Z Has data issue: false hasContentIssue false
  • English
  • Français

The effects of competition on premiums: using United Healthcare’s 2015 entry into Affordable Care Act’s marketplaces as an instrumental variable

Published online by Cambridge University Press:  08 January 2018

Cagdas Agirdas ,
Robert J. Krebs  and
Masato Yano
Cagdas Agirdas*
Affiliation:
Department of Economics, University of Tampa, Tampa, FL, USA
Robert J. Krebs
Affiliation:
College of Business, University of Tampa, Tampa, FL, USA
Masato Yano
Affiliation:
Walmart Japan/Seiyu, Tokyo, Japan
*
*Correspondence to: Cagdas Agirdas, Department of Economics, University of Tampa, 401 W. Kennedy Blvd., Box. O, Tampa, FL 33606, USA. Email: cagirdas@ut.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

One goal of the Affordable Care Act is to increase insurance coverage by improving competition and lowering premiums. To facilitate this goal, the federal government enacted online marketplaces in the 395 rating areas spanning 34 states that chose not to establish their own state-run marketplaces. Few multivariate regression studies analyzing the effects of competition on premiums suffer from endogeneity, due to simultaneity and omitted variable biases. However, United Healthcare’s decision to enter these marketplaces in 2015 provides the researcher with an opportunity to address this endogeneity problem. Exploiting the variation caused by United Healthcare’s entry decision as an instrument for competition, we study the impact of competition on premiums during the first 2 years of these marketplaces. Combining panel data from five different sources and controlling for 12 variables, we find that one more insurer in a rating area leads to a 6.97% reduction in the second-lowest-priced silver plan premium, which is larger than the estimated effects in existing literature. Furthermore, we run a threshold analysis and find that competition’s effects on premiums become statistically insignificant if there are four or more insurers in a rating area. These findings are robust to alternative measures of premiums, inclusion of a non-linear term in the regression models and a county-level analysis.

Type
Articles
Information
Health Economics, Policy and Law , Volume 14 , Issue 3 , July 2019 , pp. 374 - 399
Check for updates
Copyright
© Cambridge University Press 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Dafny, L. S. (2010), ‘Are health insurance markets competitive?’, American Economic Review, 100(4): 1399–1431.Google Scholar
Dafny, L. S., Duggan, M. and Ramanarayanan, S. (2012), ‘Paying a premium on your premium? Consolidation in the U.S. health insurance industry’, American Economic Review, 102(2): 1161–1185.Google Scholar
Dafny, L. S., Gruber, J. and Ody, C. (2015), ‘More insurers lower premiums: evidence from initial pricing in the health insurance marketplaces’, American Journal of Health Economics, 1(1): 53–81.Google Scholar
Ericson, K. M. and Starc, A. (2012), ‘Heuristics and heterogeneity in health insurance exchanges: evidence from the Massachusetts connector’, The American Economic Review, 102(3): 493–497.Google Scholar
Gabel, J. R., Whitmore, H., Green, M., Stromberg, S. T., Weinstein, D. S. and Oran, R. (2015), ‘In second year of marketplaces, new entrants, ACA “co-ops,” and medicaid plans restrain average premium growth rates’, Health Affairs, 34(12): 2020–2026.Google Scholar
Guardado, J. R., Emmons, D. W. and Kane, C. K. (2013), ‘The price effects of a large merger of health insurers: a case study of united health-Sierra’, Health Management, Policy and Innovation, 1(3): 16–35.Google Scholar
Herring, B. and Pauly, M. V. (2001), ‘Premium variation in the individual health insurance market’, International Journal of Health Care Finance and Economics, 1(1): 43–58.Google Scholar
Jacobs, P. D., Banthin, J. and Trachtman, S. (2015), ‘Insurer competition in federally run marketplaces is associated with lower premiums’, Health Affairs, 34(12): 2027–2035.Google Scholar
Kaiser Family Foundation (2011), ‘Employer Health Benefits’. 2011 Annual Survey, https://kaiserfamilyfoundation.files.wordpress.com/2013/04/8225.pdf.Google Scholar
McGuire, A. (2006), ‘Response: Is there a case for risk-based premiums in health care insurance?’, Health Economics, Policy and Law, 1: 189–193.Google Scholar
Robinson, J. C. (2004), ‘Consolidation and the transformation of competition in health insurance’, Health Affairs, 23(6): 11–24.Google Scholar
Wholey, D. S., Feldman, R. and Christianson, J. B. (1995), ‘The effect of market structure on HMO premiums’, Journal of Health Economics, 14(1): 81–105.Google Scholar
Zweifel, P. and Breuer, M. (2006), ‘The case for risk-based premiums in public health insurance’, Health Economics, Policy and Law, 1: 171–188.Google Scholar