The Affordable Care Act and Commercial Health Insurance Markets
The Affordable Care Act and Commercial Health Insurance Markets
Fixing What’s Broken?
This chapter concerns the impact of the Affordable Care Act (ACA) on the market for commercial health insurance. The analysis is conventional in that it considers whether and how the ACA can address failures in the market for commercial health insurance. The analysis is unconventional, however, in two respects. First, it emphasizes important but often overlooked heterogeneity in commercial health insurance markets. Second, the focal insurance market failure is neither moral hazard nor adverse selection. Rather attention is focused on search frictions. Search friction–induced inefficiencies are primarily found in the small group and individual market segments, where the presence of moderate search frictions significantly increases insurer market power as well as insurance member turnover. The analysis suggests that various features of the ACA may improve efficiency by offsetting distortions arising from frictions. Specifically, there are potential gains from thinning out the right tail of the distribution of prices, simplifying search, limiting adverse selection, and encouraging investments in future health.
Keywords: Affordable Care Act, ACA, health insurance, market failure, search friction, health insurance markets, health care
Chicago Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.
Please, subscribe or login to access full text content.
If you think you should have access to this title, please contact your librarian.
To troubleshoot, please check our FAQs, and if you can't find the answer there, please contact us.
