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Political Adverse Selection

Author

Listed:
  • Bursztyn, Leonardo
  • Kolstad, Jonathan
  • Rao, Aakaash
  • Tebaldi, Pietro
  • Yuchtman, Noam

Abstract

We study how the politicization of policies designed to correct market failures can undermine their effectiveness. The Patient Protection and Affordable Care Act (ACA) was among the most politically divisive expansions of the US government. We examine whether partisanship distorted enrollment and market outcomes in the ACA insurance marketplaces. Controlling for observable characteristics and holding fixed plans and premiums available, Republicans enrolled less than Democrats and independents in ACA marketplace plans. Selection out of the ACA marketplaces was strongest among Republicans with lower expected healthcare costs, generating adverse selection. Computing enrollment and average cost with and without partisan differences, we find that this political adverse selection reduced enrollment by around three million people and raised average costs in the marketplaces, increasing the level of public spending necessary to provide subsidies to low-income enrollees by around $105 per enrollee per year. Lower enrollments and higher costs are concentrated in more Republican areas, potentially contributing to polarized views of the ACA.

Suggested Citation

  • Bursztyn, Leonardo & Kolstad, Jonathan & Rao, Aakaash & Tebaldi, Pietro & Yuchtman, Noam, 2022. "Political Adverse Selection," CEPR Discussion Papers 17440, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17440
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    Keywords

    Ideology; Health care; Partisanship; Polarization; Affordable care act;
    All these keywords.

    JEL classification:

    • H0 - Public Economics - - General
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy

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