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Estimating Equilibrium in Health Insurance Exchanges: Price Competition and Subsidy Design under the ACA

Apr 2016
Working Paper
16-018
By  Pietro Tebaldi

To design premium subsidies in a health insurance market it is necessary to estimate consumer demand and study how different subsidy schemes affect insurers' incentives. Combining data from the Californian ACA marketplace with a model of insurance demand and insurers' competition, I identify and estimate demand and cost primitives, and assess equilibrium outcomes under alternative subsidy designs. I find that vouchers are less distortionary than subsidies calculated from market premiums, and — given age-heterogeneity in demand and cost — tailoring subsidies to age leads to an equilibrium where all buyers are better off and per-person public spending is lower.

Publication Keywords: 
Subsidies
health insurance
Health reform
ACA
Health exchanges