Dissertation Title: "Competition and Selection in Health Insurance Markets"

Competition in US health insurance markets is low and has declined in recent years.  Insufficient competition is often assumed to increase plan premiums or decrease benefit quality, but the latter has been difficult to establish empirically. Moreover, why health insurance competition is so low is poorly understood.  As recent health insurance expansions rely on private insurers to provide coverage, understanding why health insurance competition is low and how this affects consumers is important for policy.

Paper 1 tests for a relationship between insurer competition and health plan benefit generosity.  I examine the impact of a regulatory change that led to the cancellation of 40% of the private plans participating in the Medicare program.  I isolate the causal effect of cancellation using variation induced by insurers who removed all plans nationally.  Insurers in markets affected by cancellation responded by reducing benefit generosity.  In the average market, out-of-pocket costs for a representative beneficiary increased by about $130 per year.  Tests of possible mechanisms suggest that insurers primarily responded to changes in competition, rather than the policy's direct costs or anticipated changes in enrollees' health risks. In the least competitive markets, out-of-pocket costs increased by more than $200 a year, while in markets with the most substitutes for cancelled plans, benefit generosity barely changed. These findings have crucial implications for markets such as health insurance exchanges, as they suggest health plan quality is degraded when competition is insufficient.

Paper 2 explores why health insurance markets are so concentrated.  This paper tests how insurer and provider market power affects insurer exit using a policy change in Medicare Advantage. Under the policy, a group of indemnity insurers were forced to form provider networks de novo.  Insurers cancelled two-thirds of the affected plans following passage of this mandate. Comparison across markets where insurers selectively withdrew plans suggests that greater provider market power led to increased exit while greater insurer market power protected against it. Insurers in markets at the top decile of physician and hospital concentration were respectively 17 and 15% more likely to exit than those in the bottom decile, while insurers in the top decile of insurer market share were 68% less likely to exit than those in the bottom decile. Additionally, insurer bargaining power is found to be most protective in the most concentrated hospital markets.  Findings suggest that policies to foster insurer market participation must consider both insurer and provider market structure.

Paper 3 examines trends in Medicare Advantage enrollment. Medicare Advantage enrollment grew to its highest point in program history in 2014, despite five years of payment cuts and declining plan availability. This paper investigates whether recent enrollment growth can be expected to continue by examining trends in 65-year-olds' Medicare Advantage enrollment. As 65-year-olds are choosing among supplemental Medicare options for the first time, they may be more responsive to market conditions than other beneficiaries. Findings show that 65-year-olds' enrollment patterns differ from older cohorts, in that they increased between 2006-2009 and then leveled off between 2009-2011.  Among a range of market and plan characteristics, changes in Medicare Advantage  plan premiums and benefit generosity most plausibly explain slowing enrollment growth.  The data also suggest that, absent the recession, enrollment might have further declined.