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Browsing by Subject "Moral Hazard"

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    Essays on Competition in Health Insurance
    (2021-06) Ryan, Conor
    This dissertation consists of three chapters. In the first chapter, with coauthors Roger Feldman and Stephen Parente, I use a novel data set from a private online marketplace to estimate the demand for individual health insurance among a set comprising many high-income consumers across 18 states. We find that consumers earning more than 4 times the federal poverty level are willing to pay $30 to $135 per month to increase the actuarial value of their insurance by 10 percentage points, much less than low-income consumers. In the second chapter, I show that regulations to address adverse selection and competition policy should be considered complements. To see the relationship, consider the incentive for a firm to offer a product that appeals to low-risk consumers and leads high-risk consumers to purchase insurance elsewhere. This incentive problem, which leads to inefficient consumer sorting, is worst in highly competitive markets and absent in a monopoly. I estimate a model of the individual insurance market by combining the data from chapter one with a risk prediction model to relate preferences to marginal cost. I find that the largest welfare cost in the non-group market comes from high markups. Distortions coming from extensive margin selection and inefficient sorting are significantly addressed by current policies targeting adverse selection which are successful in improving total welfare. However, in the most concentrated markets, insurance firms recapture most of the added surplus through higher markups. In the final chapter, I study the effect of competition on medical consumption through the cost-sharing terms---e.g. copays and coinsurance rates--- of the insurance products. These terms determine the out-of-pocket price of medical care, which affect a patient's medical decisions and thus the patient's health outcomes. Using medical claims data linked to insurance products, I estimate a model of imperfect competition that incorporates adverse selection, moral hazard, and selection on moral hazard. First, I show that, on average, less competition leads to higher levels of cost-sharing but multi-product firms respond by increasing the cost-sharing levels of some products and decreasing others. Second, I find that medical consumption and health respond to cost-sharing terms. A $10 increase in the primary care copay leads to a 5.4% decrease in medical consumption and a 0.1 percentage point increase in inpatient mortality. Putting these results together, I find that a reduction in competition via a merger leads to up to a 4% increase in the primary care copay, an average reduction in medical spending of $17 per person, and an additional six inpatient deaths per year. At estimates of the statistical value of a life, the reduction in spending is more than outweighed by the cost of additional deaths.