@article {210941, title = {Price-Linked Subsidies and Imperfect Competition in Health Insurance}, journal = {American Economic Journal: Economic Policy}, volume = {12}, number = {3}, year = {2020}, month = {2016}, pages = {279-311}, abstract = { 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 tradeoff 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. }, url = {https://www.aeaweb.org/articles?id=10.1257/pol.20180198}, author = {Sonia Jaffe and Mark Shepard} }