Essays in Managed Competition in the Affordable Care Act’s Marketplaces

This dissertation examines different economic principles as they relate to the outcomes of managed competition in insurance markets with a specific focus on the Affordable Care Act’s Marketplaces. Now in their fifth year of operation, the Affordable Care Act’s (ACA) Marketplaces exhibit wide variation in their 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 market competition and whether such competition can drive greater value in the market. Chapter one examines one policy in the ACA designed to create competition, the subsidization of market entry for newly-created Consumer Operated and Oriented Plans (COOPs), which led to the establishment of twenty-four new insurers. Using difference-in-differences variation created by the subsequent exogenous exit of COOPs from most federal Marketplaces, I find that for the average market with COOP competition loss, the second lowest cost silver plan premium growth was 3.8% higher in 2016 and 8% higher in 2017. Additional analysis finds both a direct, mechanical effect as well as an indirect, competitive effect of the removal of COOP competition on premiums, with the mechanical effect of the removal of COOP plans from the market accounting for the full premium effect in 2016. In an exploration of how selection may contribute to or be driven by premium increases, I show that selection across insurers within a market cannot explain the premium increases and that an increase in the average per capita cost of enrollees as consequence of premium increases in the market may contribute to future premium increases but the magnitude of the point estimates do not explain the estimated premium effects. Finally, I show how premium increases may drive the exit of unsubsidized enrollees from and entry of subsidized enrollees to the Marketplaces, implicating long term selection effects. Chapter two (with Tim Layton, Keith Ericson and Adam Sacarny) examines consumer choice behavior in the Colorado Marketplace, Connect 4 Health Colorado (C4). Under the rules set up for the regulated individual market under the Affordable Care Act (ACA), active consumer health plan choice should drive competition among health insurers, causing them to offer products at prices close to the underlying cost to the insurer of providing the products. We investigate consumer price sensitivity, inertia, and churn using lon