Adverse Selection and an Individual Mandate: When Theory Meets Practice | Zendy

Martin B. Hackmann | Zendy; Jonathan Kolstad | Zendy; Amanda Kowalski | Zendy

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Adverse Selection and an Individual Mandate: When Theory Meets Practice

Author(s) -

Martin B. Hackmann,

Jonathan Kolstad,

Amanda Kowalski

Publication year - 2015

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20130758

Subject(s) - mandate , adverse selection , economics , welfare , health insurance , selection (genetic algorithm) , element (criminal law) , public economics , actuarial science , selection bias , health care , medicine , economic growth , political science , law , computer science , market economy , pathology , artificial intelligence

We develop a model of selection that incorporates a key element of recent health reforms: an individual mandate. Using data from Massachusetts, we estimate the parameters of the model. In the individual market for health insurance, we find that premiums and average costs decreased significantly in response to the individual mandate. We find an annual welfare gain of 4.1% per person or $51.1 million annually in Massachusetts as a result of the reduction in adverse selection. We also find smaller post-reform markups.

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