Shortly after Joe Orsini arrived at Stanford as a graduate student in economics, he took a class on industrial organization. His professors asked him to choose an industry to specialize in. Orsini made a beeline for the most compelling, most controversial option he could find — health insurance. The Affordable Care Act — popularly known as Obamacare — was getting off the ground, spurring a furious partisan debate. Orsini saw an unparalleled opportunity to shed light on a subject that seemed mostly to generate heat. “It was ripe area for policy-relevant research,” he explains.
Today Orsini is a Bradley Graduate Fellow at SIEPR writing a PhD dissertation on the individual health insurance market. His works dives directly into some of the central policy questions raised by government insurance mandates. “Joe’s study of the individual health insurance market brings new data, new economic models, and new empirical analysis to bear on some of the most important policy issues associated with the Affordable Care Act,” says his adviser, Tim Bresnahan, Landau Professor of Technology and the Economy.
Specifically, Orsini wants to know whether the Affordable Care Act requirement that no applicant can be turned down makes health insurance more expensive. On its face, it seems logical that accepting applicants likely to need medical services might force insurers to raise premiums. To answer this question, Orsini and fellow Stanford student Paul Wong got hold of a remarkable set of data — individual health insurance approval and rejection decisions made before the guaranteed coverage mandate took effect. The data, which was scrubbed of names and other identifying information, allowed Orsini to create a model of what would happen to premiums if rejections were no longer allowed. “We got pretty lucky,” he recalls. “We were a couple of young, bright-eyed students. But the CEO of a big health insurance exchange was willing to sit down with us and share sales data.”
Insurance premiums did rise as a result of the guaranteed coverage requirement, but the increases were “relatively moderate,” Orsini found. Most of the increased cost of covering high-risk individuals came out of insurer profit margins. Guaranteed coverage “isn’t as bad as we thought for prices,” he says. Orsini theorizes the reason may be the well-known phenomenon of adverse selection. If insurers raise premiums too much, healthy people may decide it’s not worth it to pay. Insurers would be left with the sickest individuals most in need of medical care. The best way to keep healthy people in the insurance pool is to hold premiums down.
Orsini came to Stanford from Michigan State University, which was the neighborhood school for him. He grew up just minutes away in nearby Okemos. He originally planned to major in physics, but got hooked on economics during his freshman year. Now, after five years in Palo Alto, Orsini has become a true Californian who spends his off hours mountain biking and rock climbing. His mother complains that he’s ended up too far from home. He tells her she got four extra years of him when he got his bachelor’s degree at the college next door.