TY  - JOUR
AU  - Fleitas, Sebastián
AU  - Gowrisankaran, Gautam
AU  - Lo Sasso, Anthony
TI  - Reclassification Risk in the Small Group Health Insurance Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 24663
PY  - 2018
Y2  - May 2018
DO  - 10.3386/w24663
UR  - http://www.nber.org/papers/w24663
L1  - http://www.nber.org/papers/w24663.pdf
N1  - Author contact info:
Sebastián Fleitas
Department of Economics
University of Leuven
3000 Leuven
Belgium
Tel: +3216373696 
E-Mail: sebastian.fleitas@kuleuven.be

Gautam Gowrisankaran
Department of Economics
University of Arizona
P.O. Box 210108
Tucson, AZ 85721-0108
Tel: 520/621-2529
Fax: 520/621-8450
E-Mail: gowrisankaran@eller.arizona.edu

Anthony T. Lo Sasso
Economics Department
DePaul University
1 East Jackson
Chicago, IL 60604
USA
Tel: 312-362-1242
E-Mail: alosasso@depaul.edu
AB  - We evaluate reclassification risk in the small group health insurance market from a period before ACA community rating regulations. Reclassification risk in this setting is of key policy relevance and also a matter of debate. We use detailed claims and premiums data from a large insurance company and control non-parametrically for selection. We find a pass through of 16% from changes in health risk to changes in premiums, with a stronger equilibrium relationship between premiums and risk. This pattern is consistent with the insurer implicitly offering “guaranteed renewability” contracts with one-sided pricing commitment. We further find that groups whose health risk decreases have premiums that are more responsive to risk, which the guaranteed renewability model attributes to ex post renegotiation. The observed pricing policy adds 60% of the consumer welfare gain from community rating relative to experience rating. The welfare gains are limited because employers and employees switch coverage frequently.
ER  -