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Incumbent regulation and adverse selection: You can keep your health plan, but at what cost?

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  • Fleitas, Sebastian
  • Gowrisankaran, Gautam
  • Lo Sasso, Anthony

Abstract

The 2010 Affordable Care Act (ACA) instituted incumbent regulation policies in the small group market, where existing health plans could choose to defer compliance with ACA regulations. This created incentives for employers with lower expected healthcare costs and greater uncertainty to not immediately become ACA compliant. We use unique national data with over 300,000 employer-years from 2013 to 2017. Consistent with these incentives, we find that employers with healthier enrollees and those with more turnover were more likely to not immediately comply. This created adverse selection in the ACA-compliant market, increasing its annual healthcare costs by $365 per individual in 2014.

Suggested Citation

  • Fleitas, Sebastian & Gowrisankaran, Gautam & Lo Sasso, Anthony, 2022. "Incumbent regulation and adverse selection: You can keep your health plan, but at what cost?," Journal of Public Economics, Elsevier, vol. 205(C).
    • Handle: RePEc:eee:pubeco:v:205:y:2022:i:c:s0047272721001924
    DOI: 10.1016/j.jpubeco.2021.104556
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    More about this item

    Keywords

    Small group market; Health insurance; Community rating;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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