Adverse Selection and an Individual Mandate: When Theory Meets Practice
American Economic Review
vol. 105,
no. 3, March 2015
(pp. 1030-66)
(Complimentary)
Abstract
We develop a model of selection that incorporates a key element of recent health reforms: an individual mandate. Using data from Massachusetts, we estimate the parameters of the model. In the individual market for health insurance, we find that premiums and average costs decreased significantly in response to the individual mandate. We find an annual welfare gain of 4.1 percent per person or $51.1 million annually in Massachusetts as a result of the reduction in adverse selection. We also find smaller post-reform markups. (JEL D82, G22, H75, I13)Citation
Hackmann, Martin B., Jonathan T. Kolstad, and Amanda E. Kowalski. 2015. "Adverse Selection and an Individual Mandate: When Theory Meets Practice." American Economic Review, 105 (3): 1030-66. DOI: 10.1257/aer.20130758Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- G22 Insurance; Insurance Companies; Actuarial Studies
- H75 State and Local Government: Health; Education; Welfare; Public Pensions
- I13 Health Insurance, Public and Private