@workingpaper {693872, title = {Adverse Selection and Network Design Under Regulated Plan Prices: Evidence from Medicaid}, year = {Working Paper}, note = {Revise \& Resubmit, Journal of Health Economics}, abstract = {Health plans for the poor increasingly limit access to specialty hospitals. We investigate the role of adverse selection in generating this equilibrium among private plans in Medicaid. Studying a network change, we find that covering a top cancer hospital causes severe adverse selection, increasing demand for a plan by 50\% among enrollees with cancer versus no impact for others. Medicaid{\textquoteright}s fixed insurer payments make offsetting this selection, and the contract distortions it induces, challenging, requiring either infeasibly high payment rates or near-perfect risk adjustment. By contrast, a small explicit bonus for covering the hospital is sufficient to make coverage profitable}, url = {https://www.nber.org/papers/w30719}, author = {Kreider, Amanda and Timothy Layton and Mark Shepard and Jacob Wallace} } @workingpaper {673602, title = {Unobserved Heterogeneity, State Dependence, and Health Plan Choices}, year = {Working Paper}, abstract = {We provide a new method to analyze discrete choice models with state dependence and individual-by-product fixed effects, and use it to analyze consumer choices in a policy-relevant environment (a subsidized health insurance exchange). Moment inequalities are used to infer state dependence from consumers{\textquoteright} switching choices in response to changes in product attributes. We infer much smaller switching costs on the health insurance exchange than is inferred from standard logit and/or random effects methods. A counterfactual policy evaluation\  illustrates that the policy implications of this difference can be substantive.}, url = {https://www.nber.org/papers/w29025}, author = {Ariel Pakes and Jack Porter and Mark Shepard and Calder-Wang, Sophie} } @workingpaper {670034, title = {Do Ordeals Work for Selection Markets? Evidence from Health Insurance Auto-Enrollment}, year = {Working Paper}, note = { Revise \& Resubmit, American Economic Review(Previously circulated as "Reducing Ordeals through Automatic Enrollment")Coverage: HKS Insights }, abstract = {Are application hassles, or {\textquotedblleft}ordeals,{\textquotedblright} an effective way to limit public program enrollment? We provide new evidence by studying (removal of) an auto-enrollment policy for health insurance, adding an extra step to enroll. This minor ordeal has a major impact, reducing enrollment by 33\% and differentially excluding young, healthy, and economically disadvantaged people. Using a simple model, we show that adverse selection {\textendash} a classic feature of insurance markets {\textendash} undermines ordeals{\textquoteright} standard rationale of excluding low-value individuals, since they are also low-cost and may not be inefficient. Our analysis illustrates why ordeals targeting is unlikely to work well in selection markets.}, url = {https://www.nber.org/papers/w30781}, author = {Mark Shepard and Myles Wagner} } @workingpaper {210951, title = {Social Security Claiming and the Annuity Puzzle}, year = {2011}, abstract = { Life cycle theory predicts that individuals facing uncertain mortality will annuitize all or most of their retirement wealth. Researchers seeking to explain why retirees rarely purchase annuities have focused on imperfections in commercial annuities {\textendash} including actuarially unfair pricing, lack of bequest protection, and illiquidity in the case of risky events like medical shocks. I study the annuity choice implicit in the timing of Social Security claiming and show that none of these can explain why most retirees claim benefits as early as possible, effectively choosing the minimum annuity. Most early claimers in the Health and Retirement Study had sufficient liquidity to delay Social Security longer than they actually did and could have increased lifetime consumption by delaying. Because the marginal annuity obtained through delay is better than actuarially fair, standard bequest motives cannot explain the puzzle. Nor can the risk of out-of-pocket nursing home costs, since these are concentrated at older ages past the break-even point for delayed claiming. Social Security claiming patterns, therefore, add to the evidence that behavioral explanations may be needed to explain the annuity puzzle. }, author = {Mark Shepard} } @article {704181, title = {Adverse Selection and (un)Natural Monopoly in Insurance Markets}, year = {Working Paper}, note = {Work in progress - Comments welcome!}, abstract = {Adverse selection is a classic market failure known to limit or {\textquotedblleft}unravel{\textquotedblright} trade in insurance\  markets and many other settings. We show that even when subsidies or mandates ensure trade, adverse selection also tends to unravel competition among differentiated firms {\textemdash} leading to fewer surviving competitors and in the extreme, what we call "un-natural monopoly." Like fixed costs in standard natural monopoly, adverse selection creates a wedge between marginal and average costs, as firms compete aggressively on price to attract (or "cherry-pick") price-sensitive low-risk consumers. This wedge must be covered by sufficiently large markups, which limits how many firms can profitably survive. Unlike fixed costs, the underlying problem is a coordination failure that can be addressed via (careful) price regulation {\textemdash} a policy often used in practice but which existing models have difficulty motivating. We show the empirical relevance of strong adverse selection on price using subsidy-driven price variation and a structural model of competition in Massachusetts{\textquoteright} health insurance exchange. Our analysis suggests a new rationale for policies mitigating adverse selection: Without them, the market devolves to monopoly; with them, the market can sustain robust insurer competition.}, author = {Timothy Layton and Edward Kong and Mark Shepard} } @article {716076, title = {Small Marketplace Premiums Pose Financial And Administrative Burdens: Evidence From Massachusetts, 2016{\textendash}17}, journal = {Health Affairs}, volume = {43}, number = {1}, year = {2024}, abstract = {Health insurance premiums are primarily understood to pose financial barriers to coverage. However, the need to remit monthly premium payments may also create administrative burdens that negatively affect coverage, even in cases where affordability is a negligible concern. Using 2016{\textendash}17 data from the Massachusetts health insurance Marketplace and a natural experiment, we evaluated how coverage retention was affected by the introduction of nominal (less than $10 for most enrollees) monthly premiums for plans that previously had $0 premiums. Compared with plans that maintained $0 premiums, those that took on nominal premiums saw enrollment fall by 14 percent over the following year. This attrition was attributable to terminations for nonpayment; most terminations occurred at the end of January, implying that a significant number of affected enrollees never initiated premium payments. These findings suggest that even very small premiums act as enrollment barriers, which may sometimes reflect administrative burdens more than financial hardship. Several policy approaches could mitigate adverse coverage outcomes related to nominal premiums.}, url = {https://www.healthaffairs.org/doi/10.1377/hlthaff.2023.00649}, author = {Adrianna McIntyre and Mark Shepard and Timothy Layton} } @article {697747, title = {A Different Framework to Achieve Universal Coverage in the US}, journal = {JAMA Health Forum}, volume = {4}, number = {2}, year = {2023}, pages = {e230187}, url = {https://jamanetwork.com/journals/jama-health-forum/fullarticle/2801230}, author = {Katherine Baicker and Amitabh Chandra and Mark Shepard} } @article {697746, title = {Achieving Universal Health Insurance Coverage in the United States: Addressing Market Failures or Providing a Social Floor?}, journal = {Journal of Economic Perspectives}, volume = {37}, number = {2}, year = {2023}, note = {Coverage: AEA Research Highlights Podcast}, month = {Spring 2023}, pages = {99-122}, abstract = {The United States spends substantially more on health care than most developed countries, yet leaves a greater share of the population uninsured. We suggest that incremental insurance expansions focused on addressing market failures will propagate inefficiencies and are not likely to facilitate active policy decisions that align with societal coverage goals. By instead defining a basic bundle of services that is publicly financed for all, while allowing individuals to purchase additional coverage, policymakers could both expand coverage and maintain incentives for innovation, fostering universal access to innovative care in an affordable system.}, url = {https://www.aeaweb.org/articles?id=10.1257/jep.37.2.99}, author = {Katherine Baicker and Amitabh Chandra and Mark Shepard} } @article {677879, title = {Do Insurers Respond to Active Purchasing? Evidence from the Massachusetts Health Insurance Exchange}, journal = {Journal of Risk and Insurance}, volume = {90}, number = {1}, year = {2023}, pages = {9-31}, abstract = {As the ACA Marketplaces face continued challenges with high premiums and limited insurer competition, there is significant interest in how policymakers can stabilize markets and control costs. We describe a unique set of active purchasing policies used by Massachusetts{\textquoteright} health insurance exchange to shape the rules of competition and reward lower-price insurers with additional customers. In contrast to the typical focus on recruiting new insurers to an exchange, Massachusetts focused on shaping insurer incentives by creating a series of carrots and sticks for setting prices below certain thresholds or below other insurers{\textquoteright} prices. We provide evidence that insurer pricing was significantly influenced by active purchasing policies. Between 2010 and 2013, over 80\% of insurer prices were set exactly at or within 1\% of pricing thresholds created by active purchasing policies. One key {\textquotedblleft}limited choice{\textquotedblright} policy{\textemdash}which restricted the choice set of fully-subsidized consumers to the two cheapest plans{\textemdash}was associated with a 16-20\% reduction in average insurance prices relative to comparison insurance markets in 2012-2014. Insurers achieved these price cuts partly through cost reductions via narrower provider networks and partly through reduced profit margins. The state{\textquoteright}s slower price growth continued during the ACA{\textquoteright}s first years, with the Connector having among the lowest benchmark premiums of any state starting in 2017.}, url = {https://onlinelibrary.wiley.com/doi/full/10.1111/jori.12414}, author = {Mark Shepard and Ethan Forsgren} } @article {632149, title = {The Two Margin Problem in Insurance Markets}, journal = {Review of Economics and Statistics}, volume = {105}, number = {2}, year = {2023}, pages = {237-257}, abstract = { Insurance markets often feature consumer sorting along both an extensive margin (whether to buy) and an intensive margin (which plan to buy). We present a new graphical theoretical framework that extends the workhorse model to incorporate both selection margins simultaneously. A key insight from our framework is that policies aimed at addressing one margin of selection often involve an economically meaningful trade-off on the other margin in terms of prices, enrollment, and welfare. For example, while a larger penalty for opting to remain uninsured reduces the uninsurance rate, it also tends to lead to unraveling of generous coverage because the newly insured are healthier and sort into less generous plans, driving down the relative prices of those plans. While risk adjustment transfers shift enrollment from lower- to higher-generosity plans, they also sometimes increase the uninsurance rate by raising the prices of less generous plans, which are the entry points into the market. We illustrate these trade-offs in an empirical sufficient statistics approach that is tightly linked to the graphical framework. Using data from Massachusetts, we show that in many policy environments these trade-offs can be empirically meaningful and can cause these policies to have unexpected consequences for overall social welfare. }, url = {https://direct.mit.edu/rest/article/105/2/237/102833/The-Two-Margin-Problem-in-Insurance-Markets}, author = {Michael Geruso and Timothy J. Layton and Grace McCormack and Mark Shepard} } @article {690612, title = {Turnover in Zero-Premium Status Among Health Insurance Marketplace Plans Available to Low-Income Enrollees}, journal = {JAMA Health Forum}, volume = {3}, number = {4}, year = {2022}, pages = {e220674-e220674}, abstract = { Importance \ Recent subsidy enhancements in Affordable Care Act (ACA) Marketplaces made many low-income enrolles (below 150\% of the federal poverty level [FPL]) eligible for 2 free silver-tier plans. eligible for 2 free silver-tier plans. However, an unintended consequence of this structure is that the identity of which silver plans are free will often {\textquotedblleft}turn over{\textquotedblright} between years, requiring that enrollees actively initiate premium payment (or lose coverage). The prevalence of this free-plan turnover is not known. Objective \ To measure the prevalence of free-plan turnover in ACA Marketplaces and to estimate how many enrollees below 150\% of FPL are likely to be affected. Design, Setting, and Participants \ This observational cross-sectional study used data on plan offerings and premiums in 33 state ACA Marketplaces using HealthCare.gov in 2021 and 2022, along with estimates of county-level enrollee characteristics and plan selection patterns. The enrollment-weighted share of county markets affected by free-plan turnover was quantified, along with the association of turnover with enrollee and market characteristics. Estimates of the number of affected low-income enrollees were calculated using the data plus statistics reported in past research. Data were analyzed from November 21, 2021, to February 28, 2022. Results \ This study found that turnover of zero-premium plans was quite common, with 93\% of HealthCare.gov counties (weighted by enrollment) experiencing at least 1 zero-premium plan in 2021 turning over to nonfree in 2022; 84\% of counties experienced turnover of all $0 silver plans from 2021 to 2022. This turnover affected an estimated 1.36 million people with incomes below 150\% of FPL. Turnover was more common in counties with a higher share of non-White enrollees, in Medicaid nonexpansion states, in counties with more carriers, and in counties with changes in the number of offered plans. Conclusions and Relevance \ The findings of this cross-sectional study suggest that owing to the prevalence of zero-premium plan turnover, many low-income ACA enrollees faced elevated risk of disenrollment at the start of 2022. Outreach to affected enrollees and other actions to encourage coverage retention and midyear reenrollment could help mitigate coverage losses. }, url = {https://jamanetwork.com/journals/jama-health-forum/fullarticle/2791516}, author = {Edward Kong and Mark Shepard and Adrianna McIntyre} } @article {687596, title = {Automatic Insurance Policies {\textemdash} Important Tools for Preventing Coverage Loss}, journal = {New England Journal of Medicine}, volume = {386}, number = {5}, year = {2022}, pages = {408-411}, url = {https://www.nejm.org/doi/full/10.1056/NEJMp2114189}, author = {Adrianna McIntyre and Mark Shepard} } @article {210956, title = {Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange}, journal = {American Economic Review}, volume = {112}, number = {2}, year = {2022}, pages = {578-615}, abstract = { Health insurers increasingly compete on their networks of medical providers. Using data from Massachusetts{\textquoteright} insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive {\textquotedblleft}star{\textquotedblright} hospitals. I highlight a theoretically distinct selection channel: consumers loyal to star hospitals incur high spending, conditional on their medical state, because they use these hospitals{\textquoteright} expensive care. This implies heterogeneity in consumers{\textquoteright} incremental costs of gaining access to star hospitals, posing a challenge for standard selection policies. Along with selection on unobserved sickness, I find this creates strong incentives to exclude star hospitals, even with risk adjustment in place. \  }, url = {https://www.aeaweb.org/articles?id=10.1257/aer.20201453}, author = {Mark Shepard} } @article {668426, title = {Can Automatic Retention Improve Health Insurance Market Outcomes?}, journal = {American Economic Review, Papers \& Proceedings}, volume = {111}, year = {2021}, month = {May 2021}, pages = {560-66}, abstract = {There is growing interest in market design using default rules and other "choice architecture{\textquotedblright} principles to steer consumers toward desirable outcomes. Using data from Massachusetts{\textquoteright} health insurance exchange, we study an {\textquotedblleft}automatic retention{\textquotedblright} policy intended to prevent coverage interruptions among low-income enrollees. Rather than disenroll people who lapse in paying premiums, the policy automatically switches them to an available free plan until they actively cancel or lose eligibility. We find that automatic retention has a sizable impact, switching 14\% of consumers annually and differentially retaining healthy, low-cost individuals. The results illustrate the power of defaults to shape insurance coverage outcomes.}, url = {https://www.aeaweb.org/articles?id=10.1257/pandp.20211083}, author = {Adrianna McIntyre and Mark Shepard and Myles Wagner} } @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} } @article {525106, title = {Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts}, journal = {American Economic Review}, volume = {109}, number = {4}, year = {2019}, note = {Research Summary: Microeconomic Insights}, abstract = { How much are low-income individuals willing to pay for health insurance, and what are the implications for insurance markets? Using administrative data from Massachusetts{\textquoteright} subsidized insurance exchange, we exploit discontinuities in the subsidy schedule to estimate willingness to pay and costs of insurance among low-income adults. As subsidies decline, insurance take-up falls rapidly, dropping about 25\% for each $40 increase in monthly enrollee premiums. Marginal enrollees tend to be lower-cost, consistent with adverse selection into insurance. But across the entire distribution we can observe {\textendash} approximately the bottom 70\% of the willingness to pay distribution {\textendash} enrollee willingness to pay is always less than half of own expected costs. As a result, we estimate that take-up will be highly incomplete even with generous subsidies: if enrollee premiums were 25\% of insurers{\textquoteright} average costs, at most half of potential enrollees would buy insurance; even premiums subsidized to 10\% of average costs would still leave at least 20\% uninsured. We suggest an important role for uncompensated care for the uninsured in explaining these findings and explore normative implications. }, url = {https://www.aeaweb.org/articles?id=10.1257/aer.20171455}, author = {Amy Finkelstein and Nathaniel Hendren and Mark Shepard} } @article {672646, title = {Why Did Employer Coverage Fall In Massachusetts After The ACA? Potential Consequences Of A Changing Employer Mandate}, journal = {Health Affairs}, volume = {37}, number = {7}, year = {2018}, pages = {1144-52}, url = {https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2018.0220?casa_token=FDPu4ZlB0rcAAAAA\%3A4qaN3mFrXGRmmuTpv_lP-JsAK632QjNQxIx4en6XjxCimkIcIRSrBFk2Ld3FGIEn3XPhl6ohqA}, author = {Benjamin D. Sommers and Mark Shepard and Katherine Hempstead} } @article {472356, title = {The Evolution of Health Insurer Costs in Massachusetts, 2010-12}, journal = {Review of Industrial Organization}, volume = {53}, number = {1}, year = {2018}, month = {2017}, pages = {117-137}, abstract = { We analyze the evolution of health insurer costs in Massachusetts between 2010-2012, paying particular attention to changes in the composition of enrollees. This was a period in which Health Maintenance Organizations (HMOs) increasingly used physician cost control incentives but Preferred Provider Organizations (PPOs) did not. We show that cost growth and its components cannot be understood without accounting for (i) consumers{\textquoteright} switching between plans, and (ii) differences in cost characteristics between new entrants and those leaving the market. New entrants are markedly less costly than those leaving (and their costs fall after their entering year), so cost growth of continuous enrollees in a plan is significantly higher than average per-member cost growth. Relatively high-cost HMO members switch to PPOs while low-cost PPO members switch to HMOs, so the impact of cost control incentives on HMO costs is likely different from their impact on market-wide insurer costs. }, url = {http://www.nber.org/papers/w22835}, author = {Kate Ho and Ariel Pakes and Mark Shepard} } @article {206411, title = {Public Financing Of The Medicare Program Will Make Its Uniform Structure Increasingly Costly To Sustain}, journal = {Health Affairs}, volume = {32}, number = {5}, year = {2013}, pages = {882-890}, abstract = { The US Medicare program consumes an ever-rising share of the\ federal budget. Although this public spending can produce health and\ social benefits, raising taxes to finance it comes at the cost of slower\ economic growth. In this article we describe a model incorporating the\ benefits of public programs and the cost of tax financing. The model\ implies that the {\textquotedblleft}one-size-fits-all{\textquotedblright} Medicare program, with everyone\ covered by the same insurance policy, will be increasingly difficult to\ sustain. We show that a Medicare program with guaranteed basic benefits\ and the option to purchase additional coverage could lead to more\ unequal health spending but slower growth in taxation, greater overall\ well-being, and more rapid growth of gross domestic product. Our\ framework highlights the key trade-offs between Medicare spending and\ economic prosperity. }, author = {Katherine Baicker and Mark Shepard and Skinner, Jonathan} } @article {206416, title = {Comparing Quality of Care in the Medicare Program}, journal = {The American Journal of Managed Care}, volume = {16}, number = {11}, year = {2010}, pages = {841-848}, url = {http://www.ajmc.com/publications/issue/2010/2010-11-vol16-n11/AJMC_10nov_Brennan841to848/}, author = {Niall Brennan, and Mark Shepard} } @inbook {644010, title = {Does One Medicare Fit All? The Economics of Uniform Health Insurance Benefits}, booktitle = {Tax Policy and the Economy}, volume = {34}, year = {2020}, publisher = {University of Chicago Press}, organization = {University of Chicago Press}, abstract = {There is increasing interest in expanding Medicare health insurance coverage in the U.S., but it is not clear whether the current program is the right foundation on which to build. Traditional Medicare covers a uniform set of benefits for all income groups and provides more generous access to providers and new treatments than public programs in other developed countries. We develop an economic framework to assess the efficiency and equity tradeoffs involved with reforming this generous, uniform structure. We argue that three major shifts make a uniform design less efficient today than when Medicare began in 1965. First, rising income inequality makes it more difficult to design a single plan that serves the needs of both higher- and lower-income people.\  Second, the dramatic expansion of expensive medical technology means that a generous program increasingly crowds out other public programs valued by the poor and middle class.\  Finally, as medical spending rises, the tax-financing of the system creates mounting economic costs and increasingly untenable policy constraints. These forces motivate reforms that shift towards a more basic public benefit that individuals can {\textquotedblleft}top-up{\textquotedblright} with private spending. If combined with an increase in other progressive transfers, such a reform could improve efficiency and reduce public spending while benefiting low income populations.}, url = {https://www.nber.org/books/moff-7}, author = {Mark Shepard and Katherine Baicker and Skinner, Jonathan} } @inbook {525136, title = {Health Plan Payment in U.S. Marketplaces: Regulated Competition with a Weak Mandate}, booktitle = {Risk Adjustment, Risk Sharing and Premium Regulation in Health Insurance Markets}, year = {2018}, publisher = {Elsevier}, organization = {Elsevier}, abstract = { The U.S. Marketplaces were introduced in 2014 as part of a reform of the U.S. individual health insurance market. While the individual market represents a small slice of the U.S. population, it has historically been the market segment with the lowest rates of take-up and greatest concerns about access to robust coverage. As part of the reform of the individual insurance market, the Marketplaces invoke many of the principles of regulated competition including (partial) community rating of premiums, mandated benefits, and risk adjustment transfers. While the Marketplaces initially appeared to be successful at increasing coverage and limiting premium growth, more recent outcomes have been less favorable and the stability of the Marketplaces is currently in question. In this chapter, we lay out in detail how the Marketplaces adopt the tools of regulated competition. We then discuss ways in which the Marketplace model deviates from the more conventional model and how those deviations may impact the eventual success or failure of these new markets. }, url = {https://www.nber.org/papers/w23444}, author = {Timothy Layton and Ellen Montz and Mark Shepard} } @inbook {525131, title = {Health plan payment in Medicaid Managed Care: A Hybrid Model of Regulated Competition}, booktitle = {Risk Adjustment, Risk Sharing and Premium Regulation in Health Insurance Markets}, year = {2018}, publisher = {Elsevier}, organization = {Elsevier}, abstract = { Medicaid, the government program for providing health insurance to low-income and disabled Americans, is the largest health insurer in the United States with more than 73 million enrollees. It is also the sector of the US public health insurance system that relies most heavily on the tools of regulated competition with more than 60\% of its enrollees enrolled in a private health plan in 2014 (CMS, 2016). However, regulated competition in Medicaid differs from the typical model, emphasizing the tools of competitive procurement, such as competitive bidding, the threat of exclusion from the market, and auto-assignment of enrollees to plans, to attempt to induce efficiency instead of relying primarily on the forces of consumer demand. In this chapter we discuss how Medicaid combines the tools of competitive procurement with the tools of regulated competition and some potential consequences of this hybrid model. }, url = {https://www.nber.org/papers/w23518}, author = {Timothy Layton and Alice Ndikumana and Mark Shepard} }