The Two-Margin Problem in Insurance Markets

A framework for ex-ante evaluation of the potential effects of risk equalization and risk sharing in health insurance markets with regulated competition

Many health insurance markets are organized by principles of regulated competition. Regulators of these markets typically apply risk equalization (aka risk adjustment) and risk sharing to mitigate risk selection. Risk equalization and risk sharing can have various positive and negative effects on efficiency and fairness. This paper provides a comprehensive framework for ex-ante evaluation of these effects. In a first step, we distinguish 22 potential effects. In a second step, we summarize and discuss quantitative measures used for evaluating risk equalization and risk sharing schemes in academic research. To underline the relevance of our work, we compare our framework with an existing framework that was previously used in the Dutch regulated health insurance market. We conclude that this framework is incomplete and uses inappropriate measures. To avoid suboptimal policy choices, we recommend policymakers (1) to consider the entire spectrum of potential effects and (2) to select their measures carefully.

Scope and Incentives for Risk Selection in Health Insurance Markets With Regulated Competition: A Conceptual Framework and International Comparison

In health insurance markets with regulated competition, regulators face the challenge of preventing risk selection. This paper provides a framework for analyzing the scope (i.e., potential actions by insurers and consumers) and incentives for risk selection in such markets. Our approach consists of three steps. First, we describe four types of risk selection: (a) selection by consumers in and out of the market, (b) selection by consumers between high- and low-value plans, (c) selection by insurers via plan design, and (d) selection by insurers via other channels such as marketing, customer service, and supplementary insurance. In a second step, we develop a conceptual framework of how regulation and features of health insurance markets affect the scope and incentives for risk selection along these four dimensions. In a third step, we use this framework to compare nine health insurance markets with regulated competition in Australia, Europe, Israel, and the United States.

Georgia's Reinsurance Waiver Associated With Decreased Premium Affordability And Enrollment

Sixteen states have used Section 1332 waivers to implement reinsurance programs that aim to reduce premiums and increase enrollment in the Affordable Care Act's health insurance Marketplaces. Although reinsurance programs have successfully reduced premiums for unsubsidized enrollees, little is known about how reinsurance affects Marketplace premiums, minimum cost of coverage, and enrollment for the large majority of Marketplace enrollees who receive premium subsidies. Using a difference-in-differences analysis of matched counties straddling Georgia's borders to examine Georgia's 2022 implementation of its reinsurance program, we found that reinsurance increased the minimum cost of enrolling in subsidized Marketplace coverage by approximately 30 percent and decreased enrollment by roughly a third for Marketplace enrollees with incomes of 251-400 percent of the federal poverty level. Marketplace reinsurance programs may have the unintended consequences of increasing the minimum cost of subsidized coverage and reducing enrollment. These outcomes are especially relevant in the present policy context of enhanced subsidies, which have substantially reduced the number of unsubsidized enrollees who would benefit most from reinsurance.