NBER Working Papers by Benjamin R. Handel

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Working Papers

October 2015What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics
with Zarek C. Brot-Goldberg, Amitabh Chandra, Jonathan T. Kolstad: w21632
Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which required all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending. We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions and (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evide...
September 2013Equilibria in Health Exchanges: Adverse Selection vs. Reclassification Risk
with Igal Hendel, Michael D. Whinston: w19399
This paper studies regulated health insurance markets known as exchanges, motivated by their inclusion in the Affordable Care Act (ACA). We use detailed health plan choice and utilization data to model individual-level projected health risk and risk preferences. We combine the estimated joint distribution of risk and risk preferences with a model of competitive insurance markets to predict outcomes under different regulations that govern insurers' ability to use health status information in pricing. We investigate the welfare implications of these regulations with an emphasis on two potential sources of inefficiency: (i) adverse selection and (ii) premium reclassification risk. We find that market unravelling from adverse selection is substantial under the proposed pricing rules in the...
August 2013Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare
with Jonathan T. Kolstad: w19373
Traditional models of insurance choice are predicated on fully informed and rational consumers protecting themselves from exposure to financial risk. In practice, choosing an insurance plan from a set of complex non-linear contracts is a complicated decision often made without full information on several potentially important dimensions. In this paper we combine new administrative data on health plan choices and claims with unique survey data on consumer information and other typically unobserved preference factors in order to separately identify risk preferences, information frictions, and perceived plan hassle costs. The administrative and survey data are linked at the individual level, allowing in-depth investigations of the links between these micro- foundations in both descriptive and...

Published: Handel, Benjamin R., and Jonathan T. Kolstad. 2015. "Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare." American Economic Review, 105(8): 2449-2500.

September 2011Adverse Selection and Switching Costs in Health Insurance Markets: When Nudging Hurts
This paper investigates consumer switching costs in the context of health insurance markets, where adverse selection is a potential concern. Though previous work has studied these phenomena in isolation, they interact in a way that directly impacts market outcomes and consumer welfare. Our identification strategy leverages a unique natural experiment that occurred at a large firm where we also observe individual-level panel data on health insurance choices and medical claims. We present descriptive results to show that (i) switching costs are large and (ii) adverse selection is present. To formalize this analysis we develop and estimate a choice model that jointly quantifies switching costs, risk preferences, and ex ante health risk. We use these estimates to study the welfare impact of an...

Published: “Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts.” American Economic Review, vol. 103(7), 2013, 2643-2682 (lead article)

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