Health Insurance Exchanges can Save Older Consumers as much as 15% per Year; Without a Mandate to Purchase Exchange May Unravel

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A healthcare policy study of the Massachusetts Health Insurance Exchange by Keith Marzilli Ericson, Boston University School of Management, and Amanda Starc, Wharton School at the University of Pennsylvania, shows that purchasing mandates have a dramatic effect on the market functioning effectively, if at all.

A study of the Massachusetts Health Insurance Exchange shows that purchasing mandates have a dramatic effect on the market functioning effectively, if at all. The Massachusetts exchange is the model for the national federally mandated program.

Additionally, in Massachusetts, pricing regulations lowered insurer profits by about $300/ per enrollee per year and lowered prices on older individuals by about 15 percent for those above the age of 45 (compared with a market that had no limitations on how prices can vary by age).

The study, “Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange,” was authored by Keith M. Marzilli Ericson, Assistant Professor of Markets, Public Policy, and Law at Boston University School of Management, and Amanda Starc, Assistant Professor of Healthcare Management at the Wharton School at the University of Pennsylvania.

The study showed that if consumers are allowed to opt out of coverage, the markets can unravel. The most price sensitive consumers – who tend to be young and relatively healthy – will tend to opt out and other consumers will have higher mark-ups.

“A weak or absent mandate,” write Ericson and Starc, “can result in a death spiral.”     

The study applies the data from the nation’s first Health Information Exchange and applies the data to the broader functioning of the exchanges themselves which require a minimum level of insurance coverage be purchased by the public. It can be accessed on http://www.nber.org/papers/w18089

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About Boston University School of Management

At Boston University School of Management, we empower brave, agile leaders to harness the power of disruptive change and transform it for the benefit of the world. Our real-world programs prepare students with a foundation in core business skills and insight into the forces transforming the global economy: digital technology, social enterprise and sustainability, and health and life sciences. Founded in 1913, the School offers undergraduate, graduate, executive, and doctoral programs. For more information, visit bu.edu/smg.

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