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Reclassification Risk in the Small Group Health Insurance Market

Sebastián Fleitas, Gautam Gowrisankaran, Anthony Lo Sasso

NBER Working Paper No. 24663
Issued in May 2018
NBER Program(s):Health Care, Industrial Organization

We evaluate reclassification risk and adverse selection in the small group insurance market from a period before ACA community rating regulations. Using detailed individual-level data from a large insurer, we find a pass through of 5-43% from expected health risk to premiums. This limited reclassification risk cannot be explained by market power or search frictions but may be due to implicit long-term contracts. We find no evidence of adverse selection generated by reclassification risk. The observed pricing policy adds $2,346 annually in consumer welfare over 10 years relative to experience rating. Community rating would not increase consumer welfare substantially.

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Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24663

 
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