Price-Linked Subsidies and Imperfect Competition in Health Insurance / Sonia P. Jaffe, Mark Shepard.

Format:

Book

Author/Creator:

Jaffe, Sonia P.

Contributor:

National Bureau of Economic Research.

Shepard, Mark.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23104.

NBER working paper series no. w23104

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

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.

Notes:

Print version record

January 2017.