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Political adverse selection

Bursztyn, Leonardo, Kolstad, Jonathan T., Rao, Aakaash, Tebaldi, Pietro and Yuchtman, Noam (2022) Political adverse selection. CEP Discussion Papers (1858). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We study how the politicization of policies designed to correct market failures can undermine their effectiveness. The Patient Protection and Affordable Care Act (ACA) was among the most politically divisive expansions of the US government. We examine whether partisanship distorted enrollment and market outcomes in the ACA insurance marketplaces. Controlling for observable characteristics and holding fixed plans and premiums available, Republicans enrolled less than Democrats and independents in ACA marketplace plans. Selection out of the ACA marketplaces was strongest among Republicans with lower expected healthcare costs, generating adverse selection. Computing enrollment and average cost with and without partisan differences, we find that this political adverse selection reduced enrollment by around three million people and raised average costs in the marketplaces, increasing the level of public spending necessary to provide subsidies to low-income enrollees by around $105 per enrollee per year. Lower enrollments and higher costs are concentrated in more Republican areas, potentially contributing to polarized views of the ACA.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 2022 The Authors
Divisions: Management
Subjects: R Medicine > RA Public aspects of medicine
H Social Sciences > HB Economic Theory
J Political Science > JK Political institutions (United States)
JEL classification: H - Public Economics > H5 - National Government Expenditures and Related Policies > H51 - Government Expenditures and Health
I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy; Regulation; Public Health
Date Deposited: 16 Jan 2023 17:09
Last Modified: 15 Sep 2023 23:58
URI: http://eprints.lse.ac.uk/id/eprint/117908

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