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Insurers Response to Selection Risk: Evidence from Medicare Enrollment Reforms

Evidence on insurers behavior in environments with both risk selection and market power is largely missing. We fill this gap within the context of privatized Medicare providing one of the first empirical accounts of how insurers adjust plan features when faced with a potential change in selection. Our empirical strategy exploits the combined effects of a Medicare reform that altered the potential selection risk of the highest quality (5-star) Part C and D plans and the geographical dispersion of such plans over the US territory. Starting in 2012, exclusively for 5-star plans the open enrollment window was widened to allow enrollments at anytime during the year. We estimate that, due to the reform, the within-year enrollment of 5-star plans increases, but their risk pool does not worsen and actually slightly improves. Correspondingly, when estimating impacts on the market-level distribution of various plan features, we find lower premiums and decreased coverage generosity for 5-star plans relative to competing plans, leading us to argue that 5-star plans became more appealing for most beneficiary, but less so for those in worse health conditions.

Author(s)
Francesco Decarolis
Andrea Guglielmo
Publication Date
October, 2015