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Job Market Paper
The Affordable Care Act (ACA) requires that all U.S. states establish regulated individual insurance markets, known as health insurance exchanges (HIX), to facilitate the purchase of health insurance. In this paper, I evaluate the current HIX system and examine its optimal design, accounting for adverse selection and equilibrium labor market interactions. I first develop and empirically implement a life cycle equilibrium labor market search model integrated with the pre-ACA health insurance market. Various forms of individual heterogeneity are incorporated to understand the welfare consequences of introducing HIX. I estimate the model by method of simulated moments using a combination of micro data sources. Through counterfactual experiments, I find that the ACA substantially reduces the uninsured rate. However, it also decreases aggregate labor productivity because more workers choose employment in less productive firms. Next, I examine the optimal design of HIX by choosing the values of three major design components—individual mandates (tax penalties on the uninsured), premium subsidies and age-based rating regulations. I find that the optimal combination of these components makes it less beneficial for older workers relative to younger workers to purchase health insurance from HIX. Implementing the optimal structure leads to a substantial welfare gain relative to the HIX implemented under the ACA while achieving higher labor productivity and a slightly lower uninsured rate.
Revise and Resubmit, Econometrica
We present and empirically implement an equilibrium labor market search model where risk averse workers facing medical expenditure shocks are matched with firms making health insurance coverage decisions. Our model delivers a rich set of predictions that can account for a wide variety of phenomenon observed in the data including the correlations among firm sizes, wages, health insurance offering rates, turnover rates and workers' health compositions. We estimate our model by Generalized Method of Moments using a combination of micro data sources including Survey of Income and Program Participation (SIPP), Medical Expenditure Panel Survey (MEPS) and Robert Wood Johnson Foundation Employer Health Insurance Survey. We use our estimated model to evaluate the equilibrium impact of the 2010 Affordable Care Act (ACA) and find that it would reduce the uninsured rate among the workers in our estimation sample from 20.12% to 7.27%. We also examine a variety of alternative policies to understand the roles of different components of the ACA in contributing to these equilibrium changes. Interestingly, we find that the uninsured rate will be even lower (at 6.44%) if the employer mandate in the ACA is eliminated.
Advertising Competition and Risk Selection in Health Insurance Markets: Evidence from Medicare Advantage (with You Suk Kim)
This paper studies the incentives for private insurers to use advertising to attract low-cost, healthy individuals and the impacts of advertising on selection, competition, and welfare in the context of the market for privatized Medicare plans, called Medicare Advantage (MA). Using data on the advertising expenditures of MA plans in local advertising markets, individual-level and county-level MA enrollment, and characteristics of plans and markets, we first document a large difference in an insurance company's potential profits from healthy vs. unhealthy individuals. We also provide descriptive evidence that an insurer's advertising expenditure is larger in a local market where profits from enrolling healthy individuals are greater. We then develop and estimate an equilibrium model of the MA market, which incorporates strategic advertising by insurers. In the model, insurers advertise not only to increase the number of enrollees, but also to attract a larger share of healthy enrollees. Parameter estimates show that advertising has positive effects on overall demand, but a much larger effect on the demand of the healthy. Compared to a counterfactual market where advertising is banned altogether, we find that advertising accounts for 15% of the selection of healthier individuals into Medicare Advantage. We then study the impact of risk adjustment policies, which provide payments to insurers depending on their enrollee characteristics. We find that if the government switches from an existing, imperfect risk-adjusted scheme to a perfectly risk-adjusted scheme, insurers' gain from risk selection decreases, leading to a large decrease in advertising.
Fall 2010 Introduction to Econometrics, Recitation Instructor for Professor Xu Cheng
Spring 2011 Introduction to Econometrics, Recitation Instructor for Professor Francis Diebold
Fall 2011 Public Finance, Teaching Assistant for Professor Hanming Fang
Kenneth I. Wolpin
I am on the job market and will be available for interviews during the AEA meetings here in Philadelphia from 1/3 to 1/5.