Regulations to design private yet publicly sponsored health insurance markets are increasingly adopted in many OECD countries. Here I combine data and economic theory to analyse the interaction between insurers’ competition and the design of premium subsidies in determining equilibrium outcomes. My empirical model includes adverse selection, rich heterogeneity in preferences for vertically and horizontally differentiated plans and accommodates alternative assumptions on pricing conduct. In the context of the Affordable Care Act in the U.S., I estimate the joint distribution of preferences and expected cost using Californian administrative records on 3.4 million plan choices between 2014 and 2017, combined with plan and survey data on medical claims. An empirical horse race between conduct assumptions favours oligopoly pricing over perfect competition. Considering alternative subsidy designs shows that, in equilibrium, shifting subsidy generosity toward the “young invincibles” would lower premiums for all enrolees while increasing enrolment and profits.

Under the Affordable Care Act, individual states have discretion in how they define coverage regions, within which insurers must charge the same premium to buyers of the same age, family structure, and smoking status. We exploit variation in these definitions to investigate whether the size of the coverage region affects outcomes in the ACA marketplaces. We find large consequences for small and rural markets. When states combine small counties with neighboring urban areas into a single region, the included rural markets see 0.6 to 0.8 more active insurers, on average, and savings in annual premiums of between $200 and $300.

We develop a new nonparametric approach for discrete choice and use it to analyze the demand for health insurance in the California Affordable Care Act marketplace. The model allows for endogenous prices and instrumental variables, while avoiding parametric functional form assumptions about the unobserved components of utility. We use the approach to estimate bounds on the effects of changing premiums or subsidies on coverage choices, consumer surplus, and government spending on subsidies. We find that a $10 decrease in monthly premium subsidies would cause a decline of between 1.8% and 6.7% in the proportion of subsidized adults with coverage. The reduction in total annual consumer surplus would be between $62 and $74 million, while the savings in yearly subsidy outlays would be between $207 and $602 million. We estimate the demand impacts of linking subsidies to age, finding that shifting subsidies from older to younger buyers would increase average consumer surplus, with potentially large impacts on enrollment. We also estimate the consumer surplus impact of removing the highly‐subsidized plans in the Silver metal tier, where we find that a nonparametric model is consistent with a wide range of possibilities. We find that comparable mixed logit models tend to yield price sensitivity estimates toward the lower end of the nonparametric bounds, while producing consumer surplus impacts that can be both higher and lower than the nonparametric bounds depending on the specification of random coefficients.

Who bears the consequences of administrative problems in health care? We use data on repeated interactions between a large sample of U.S. physicians and many different insurers to document the complexity of health care billing, and estimate its economic costs for doctors and consequences for patients. Observing the back-and-forth sequences of claim denials and resubmissions for past visits, we can estimate physicians’ costs of haggling with insurers to collect payments. Combining these costs with the revenue never collected, we estimate that physicians lose 18% of Medicaid revenue to billing problems, compared with 4.7% for Medicare and 2.4% for commercial insurers. Identifying off of physician movers and practices that span state boundaries, we find that physicians respond to billing problems by refusing to accept Medicaid patients in states with more severe billing hurdles. These hurdles are quantitatively just as important as payment rates for explaining variation in physicians’ willingness to treat Medicaid patients. We conclude that administrative frictions have first-order costs for doctors, patients, and equality of access to health care. We quantify the potential economic gains—in terms of reduced public spending or increased access to physicians—if these frictions could be reduced and find them to be sizable.