The Impact of Subsidized Entry in the Affordable Care Act’s Marketplaces on Market Outcomes

The Impact of Subsidized Entry in the Affordable Care Act’s Marketplaces on Market Outcomes

ELLEN MONTZ

ABSTRACT. Now in their fourth year of operation, the Affordable Care Act’s (ACA) Marketplaces exhibit wide variation in the level of competition. Across markets, premium growth trends and participation rates for eligible consumers also vary widely, sparking renewed debate over how policies can work to improve the market competition and functioning. This study examines one such policy in the ACA, the subsidization of market entry for Consumer Operated and Oriented Plans (COOPs). Using difference-in-differences variation created by a federal policy change precipitating the exit of COOPs from most federal Marketplaces, I find that premium increases were higher in markets where the exiting COOP represented a larger share of the market. For the average market with COOP competition loss, premium increases were 3.8% higher in 2016 and 8% higher in 2017 for the second lowest cost silver plan in the market. I find both a direct (mechanical) and indirect (competitive) effect on premiums from the loss of COOP competition. In an exploration of whether selection can help explain the non-mechanical premium increases, I show that selection across insurers within a market cannot explain the premium increases but that selection on the extensive margin of Marketplace participation (insured versus uninsured) in the unsubsidized population may occur as a consequence of competition changes and subsequently contribute to premium increases.