Regulating Markups in US Health Insurance
AbstractA health insurer's Medical Loss Ratio (MLR) is the share of premiums spent on medical claims, or the inverse markup over average claims cost. The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives to increase costs. Using variation created by the rule's introduction as a natural experiment, we find medical claims rose nearly one-for-one with distance below the regulatory threshold: 7 percent in the individual market and 2 percent in the group market. Premiums were unaffected.
CitationCicala, Steve, Ethan M. J. Lieber, and Victoria Marone. 2019. "Regulating Markups in US Health Insurance." American Economic Journal: Applied Economics, 11 (4): 71-104. DOI: 10.1257/app.20180011
- G22 Insurance; Insurance Companies; Actuarial Studies
- H51 National Government Expenditures and Health
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health