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Regulating Markups in US Health Insurance†

Regulating Markups in US Health Insurance† AbstractA health insurer's Medical Loss Ratio (MLR) is the share of premiums spent on medical claims, or the inverse markup over average claims cost. The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives to increase costs. Using variation created by the rule's introduction as a natural experiment, we find medical claims rose nearly one-for-one with distance below the regulatory threshold: 7 percent in the individual market and 2 percent in the group market. Premiums were unaffected. (JEL G22, H51, I13, I18) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Applied Economics American Economic Association

Regulating Markups in US Health Insurance†

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Publisher
American Economic Association
Copyright
Copyright © 2019 © American Economic Association
ISSN
1945-7790
DOI
10.1257/app.20180011
Publisher site
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Abstract

AbstractA health insurer's Medical Loss Ratio (MLR) is the share of premiums spent on medical claims, or the inverse markup over average claims cost. The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives to increase costs. Using variation created by the rule's introduction as a natural experiment, we find medical claims rose nearly one-for-one with distance below the regulatory threshold: 7 percent in the individual market and 2 percent in the group market. Premiums were unaffected. (JEL G22, H51, I13, I18)

Journal

American Economic Journal: Applied Economics – American Economic Association

Published: Oct 1, 2019

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