Utilization and Competition in the Affordable Care Act's Health Insurance Marketplaces

158 Pages·2017·1.13 MB·English

by  Matthew T. Panhans

Utilization and Competition in the Affordable Care
Act’s Health Insurance Marketplaces
by
Matthew T. Panhans
Department of Economics
Duke University
Date:
Approved:
Juan Carlos Sua´rez Serrato, Supervisor
Allan Collard-Wexler
Frank Sloan
James Roberts
Dissertation submitted in partial fulfillment of the requirements for the degree of
Doctor of Philosophy in the Department of Economics
in the Graduate School of Duke University
2017
Abstract
Utilization and Competition in the Affordable Care Act’s
Health Insurance Marketplaces
by
Matthew T. Panhans
Department of Economics
Duke University
Date:
Approved:
Juan Carlos Sua´rez Serrato, Supervisor
Allan Collard-Wexler
Frank Sloan
James Roberts
An abstract of a dissertation submitted in partial fulfillment of the requirements for
the degree of Doctor of Philosophy in the Department of Economics
in the Graduate School of Duke University
2017
Copyright (cid:13)c 2017 by Matthew T. Panhans
All rights reserved except the rights granted by the
Creative Commons Attribution-Noncommercial Licence
Abstract
This dissertation consists of three essays that analyze healthcare and health insur-
ance markets in relation to healthcare reform, and particularly in the context of the
Affordable Care Act (ACA). The first essay uses a nationwide datasets of plan of-
ferings, premiums, and network sizes for the ACA Health Insurance Marketplaces in
2014 to document patterns relating to the effects of competition on premiums and
plan network characteristics. The results suggest that greater competition is associ-
ated with lower premiums, and that narrow network plans do offer lower premiums.
This study also documents heterogeneity along these dimensions across types of in-
surance plans by ownership structure (not-for-profit, for-profit, and CO-OP). This
heterogeneity suggests that a market’s overall welfare may depend on the equilibrium
market shares and ownership types of the competing firms.
The second and third essays use the State of Colorado’s new All-Payer Claims
Database (APCD) to examine the welfare consequences in the state’s non-group
health insurance market, which includes the ACA Marketplace. In the second essay,
I test for adverse selection into the ACA Marketplace, and evaluate policies that
may help to ameliorate the welfare loss due to adverse selection. Specifically, I use
plausibly exogenous premium variation generated by geographic discontinuities to
provide evidence of adverse selection, whereby low-cost individuals exit the market
in response to rising premiums. Specifically, a 1% increase in premiums causes a
0.8% increase in medical expenditures of the insured population. The estimates
iv
indicate that additional premium subsidies, and especially age-targeted subsidies,
would enhance welfare. These results offer the first quasi-experimental evidence of
selection in the ACA Exchanges.
In the third essay, my co-author Eli Liebman and I extend this analysis to take
into account imperfect competition in both health insurance and hospital markets.
We bring together the literatures on insurer-hospital bargaining and selection in im-
perfectly competitive insurance markets to propose a model that captures features
salient to the health insurance marketplaces. In particular, although insurance mar-
kets tend to be concentrated, the ACA aimed to foster competitive marketplaces,
highlighting the importance for understanding the interaction between imperfect
competition and selection. The degree of competition among insurance plans affects
both selection across plans and on the extensive margin, as well as simultaneously
affecting the prices negotiated with providers. We show theoretically that provider
market power and adverse selection can interact to amplify the welfare loss due to
either one of these two channels individually. We also show why ignoring adverse se-
lection will lead to biased estimates of bargaining parameters in the standard model
of hospital-insurer bargaining. Finally, we use medical claims from the State of Col-
orado, to quantify the welfare consequences for that market. These considerations
are relevant for evaluating the effects of policy interventions in the ACA’s health
insurance marketplaces that affect insurer entry/exit and premium setting.
v
To my parents, who always kept believing in me.
vi
Contents
Abstract iv
List of Tables x
List of Figures xii
List of Abbreviations and Symbols xiv
Acknowledgements xvi
1 Introduction 1
2 Competition in the ACA Health Insurance Marketplaces 5
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Contribution to Literature . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Data and Problems with LDI Physician Network Database . . . . . . 8
2.4 Descriptive Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 Adverse Selection in ACA Exchange Markets: Evidence from Col-
orado 19
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.2 The ACA Exchanges and Literature Context . . . . . . . . . . . . . . 25
3.2.1 Community Rating Provision of the ACA . . . . . . . . . . . . 25
3.2.2 Health Insurance Exchanges . . . . . . . . . . . . . . . . . . . 26
vii
3.2.3 Relation to the Literature . . . . . . . . . . . . . . . . . . . . 28
3.3 Data and Descriptive Evidence of Selection . . . . . . . . . . . . . . . 31
3.3.1 Colorado’s APCD . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.3.2 Descriptive Evidence . . . . . . . . . . . . . . . . . . . . . . . 32
3.4 Main Results: Are the Exchanges Adversely Selected? . . . . . . . . . 36
3.4.1 Boundary Discontinuity . . . . . . . . . . . . . . . . . . . . . 37
3.4.2 Boundary Discontinuity Results . . . . . . . . . . . . . . . . . 42
3.4.3 Chronic Conditions . . . . . . . . . . . . . . . . . . . . . . . . 44
3.5 Demand Estimation and Welfare Implications . . . . . . . . . . . . . 45
3.5.1 Demand Estimation . . . . . . . . . . . . . . . . . . . . . . . 46
3.5.2 Welfare Estimates and Policy Evaluation . . . . . . . . . . . . 48
3.5.3 Age-targeted Premium Subsidies . . . . . . . . . . . . . . . . 52
3.5.4 The Social Value of Coverage . . . . . . . . . . . . . . . . . . 58
3.6 Robustness and Extensions . . . . . . . . . . . . . . . . . . . . . . . . 60
3.6.1 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
3.6.2 Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
3.6.3 Sorting Across Metal Levels and Moral Hazard . . . . . . . . . 62
3.7 Discussion and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . 65
4 Hospital-Insurer Bargaining in Selection Markets 81
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.2 Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.3 Stylized Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
4.3.1 Graphical Example . . . . . . . . . . . . . . . . . . . . . . . . 87
4.3.2 Analytic Example . . . . . . . . . . . . . . . . . . . . . . . . . 91
4.4 Relevant Empirical Patterns . . . . . . . . . . . . . . . . . . . . . . . 94
viii
4.5 Structural Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
4.5.1 Individual Demand for Hospitals . . . . . . . . . . . . . . . . 96
4.5.2 Network Willingness-to-Pay Calculation . . . . . . . . . . . . 97
4.5.3 Individual Demand for Insurance Plans . . . . . . . . . . . . . 98
4.5.4 Insurer Premium Setting and Hospital-Insurer Bargaining . . . 100
4.6 Simulation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
4.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
A Appendix 115
A.1 Essential Health Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 115
A.2 How do premium tax credits work? . . . . . . . . . . . . . . . . . . . 116
A.3 Data Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
A.4 Chronic Conditions Indictor tool . . . . . . . . . . . . . . . . . . . . 118
A.5 Theoretical Underpinning of Empirical Analysis . . . . . . . . . . . . 119
A.5.1 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
A.5.2 Use of Premium Variation . . . . . . . . . . . . . . . . . . . . 121
A.5.3 Market with More Than Two Choices . . . . . . . . . . . . . . 122
A.6 Appendix Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Bibliography 137
Biography 142
ix
List of Tables
2.1 Premiums and network size . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 Premiums and network size, with fixed network data . . . . . . . . . 18
2.3 Heterogeneity across insurer types . . . . . . . . . . . . . . . . . . . . 18
3.1 Non-group Take Up Rates in Colorado, 2014 . . . . . . . . . . . . . . 72
3.2 Balance in Demographic Characteristics . . . . . . . . . . . . . . . . 73
3.3 External Validity of Boundary Sample . . . . . . . . . . . . . . . . . 74
3.4 Evidence of Selection: IV . . . . . . . . . . . . . . . . . . . . . . . . . 75
3.5 Placebo IV Regressions . . . . . . . . . . . . . . . . . . . . . . . . . . 76
3.6 Breakdown by Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
3.7 Indicator for Chronic Condition . . . . . . . . . . . . . . . . . . . . . 77
3.8 Demand elasticity estimates . . . . . . . . . . . . . . . . . . . . . . . 78
3.9 Optimal subsidy policy by age, no restrictions on age pricing . . . . . 79
3.10 ER vs. Non-ER spending . . . . . . . . . . . . . . . . . . . . . . . . . 80
4.1 Deadweight loss in various settings . . . . . . . . . . . . . . . . . . . 89
4.2 Cheaper Plans Attract Healthier Enrollees . . . . . . . . . . . . . . . 111
4.3 Market Structure and Prices, Excluding Denver . . . . . . . . . . . . 112
4.4 Market Structure and Prices, Excluding Denver . . . . . . . . . . . . 113
4.5 Simulation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
4.6 Broad Network Plan % Premium Increase, at Various Parameter Val-
ues, With and Without Selection . . . . . . . . . . . . . . . . . . . . 114
x