Insurers' Response to Selection Risk: Evidence from Medicare Enrollment Reforms

Francesco Decarolis, Andrea Guglielmo

NBER Working Paper No. 22876
Issued in December 2016, Revised in February 2017
NBER Program(s):Health Care, Health Economics, Industrial Organization, Public Economics

Evidence on insurers’ behavior in environments with both risk selection and market power is largely missing. We fill this gap by providing one of the first empirical accounts of how insurers adjust plan features when faced with potential changes in selection. Our strategy exploits a 2012 reform allowing Medicare enrollees to switch to 5-star contracts at anytime. This policy increased enrollment into 5-star contracts, but without risk selection worsening. Our findings show that this is due to 5-star plans lowering both premiums and generosity, thus becoming more appealing for most beneficiaries, but less so for those in worse health conditions.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w22876

Published: Francesco Decarolis & Andrea Guglielmo, 2017. "Insurers’ response to selection risk: Evidence from Medicare enrollment reforms," Journal of Health Economics, vol 56, pages 383-396. citation courtesy of