NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Khoa Vu

Department of Applied Economics
University of Minnesota
332M Ruttan Hall
1994 Bufford Avenue
Saint Paul, MN 55108

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NBER Working Papers and Publications

December 2017How do insurance firms respond to financial risk sharing regulations? Evidence from the Affordable Care Act
with Daniel W. Sacks, Tsan-Yao Huang, Pinar Karaca-Mandic: w24129
We investigate the effect of the Risk Corridors (RC) program on premiums and insurer participation in the Affordable Care Act (ACA)’s Health Insurance Marketplaces. The RC program, which was defunded ahead of coverage year 2016, and ended in 2017, is a risk sharing mechanism: it makes payments to insurers whose costs are high relative to their revenue, and collects payments from insurers whose costs are relatively low. We show theoretically that the RC program creates strong incentives to lower premiums for some insurers. Empirically, we find that insurers who claimed RC payments in 2015, before defunding, had greater premium increases in 2017, after the program ended. Insurance markets in which more insurers made RC claims experienced larger premium increases after the program ended, refl...
 
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