JOB MARKET PAPER
Managing Behavioral Hazard — Value-Based Insurance Design and Inertia
Health insurance can be used as a mechanism for more efficient health care decisions. While value-based insurance design (VBID) aligns cost-sharing with clinical value, whether consumers reduce their medical expenditures is unclear. I study the impact of a new value-based insurance design which decreased copays for primary care physician visits, increased copays for specialist visits, and introduced negative cost-sharing with preventive care incentives to reduce the deductible. I find consumers are persistent in their plan choice and there is entry of younger, new employees into the VBID plan. Old subscribers defaulted into VBID have a greater number of PCP visits while new employees who actively choose VBID have a lower number of specialist visits compared to non-VBID subscribers. To study the demand for this new design and how selection and treatment effects interact with consumers experiencing inertia, I estimate a model of plan choice and level of deductible and investigate responses to counterfactual plan menus which i) reduce the number of plan options, ii) lower the switching cost to zero, and iii) mandate enrollment in the value-based plan. By switching to the value-based plan, enrollees can reduce their premium paid by as much as $4,351 with moderate expected increases in out-of-pocket payments of $85 for subscribers with good health and $245 for those with poor health, on average. These results highlight the importance of active choice coupled with decision aids, targeted information about coverage changes, and strong financial incentives to motivate changes in consumer behavior.
Employer Risk-Adjustment Transitions with Inertial Consumers
with Ben Handel, Nianyi Hong, and Yuki Ito
Risk-adjustment policies, which transfer money from insurers with healthy consumers to those with sick consumers, are an important tool to contend with adverse selection in health insurance markets. While the steady state properties of risk-adjustment have been studied extensively, there is less evidence on the transition phase of policy implementation. We leverage the quasi-experimental setting of the introduction and removal of risk-adjustment to show how policies, such as risk adjustment, have limited re-sorting. Due to the presence of a default option with a consumer’s previous plan choice, consumers exhibit significant inertia in plan choice. We estimate a model of plan choice to study counterfactual policies whereby inertia is reduced at the time the risk-adjustment program ends. We show that in this no-inertia scenario, there is significant re-sorting, similar to what is envisioned in risk-adjustment models. When consumers reoptimize fluidly, this substantially mitigates the distributional effects of inertial, sicker enrollees and enrollees in more generous PPO plans paying higher premiums under the removal of risk adjustment.
How Does Cost-Sharing Impact Spending Growth and Cost-Effective Treatments? Evidence from Deductibles
with Claudio Lucarelli, Molly Frean, Aliza S. Gordon, and Mark Pauly
Costly new technology, while often beneficial, has been identified as the principal driver of healthcare spending growth. Recent literature has shown high deductible health plans (HDHP) can have an immediate impact on levels of healthcare spending, but their medium and long run effects on spending growth remain unknown. Analyzing a panel of multiple-employer-group claims data from a national insurer, we find that people with HDHPs for four or more years have the same total spending growth as long term enrollees in LDHP’s. We use recent advances in the difference-in-differences literature to account for differential timing of treatment of individuals enrolled in low deductible health plans (LDHPs) switching to high deductible health plans (HDHPs). We observe a significant difference in spending only in the first-year post-switch from a LDHP to a HDHP plan. HDHPs do, however, reduce spending growth over time for prescription drugs, lowering growth for less cost-effective drugs but not affecting growth in spending on highly cost-effective medicines.
JAMA: The Journal of the American Medical Association, 2020; 323(7), 663–665
(Maria Polyakova and Lynn M. Hua)
Annals of Internal Medicine, 2019; 171(7), 464–473
Marketplace Plans Provide Risk Protection, But Actuarial Values Overstate Realized Coverage For Most Enrollees
(Maria Polyakova, Lynn M. Hua, and Kate Bundorf)
Health Affairs, 2017; 36(12), 2078-2084
Racial Differences in Awareness of the Affordable Care Act and Application Assistance Among Low-Income Adults in Three Southern States
(Adrian Garcia Mosquiera, Lynn M. Hua, and Benjamin Sommers)
INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 2015; 52