1. Lessons from Massachusetts for Health Insurance Exchanges
Mark Shepard Harvard Kennedy School and NBER
Wharton Health Insurance Exchange Conference
September 2017

2. Introduction
With ACA “repeal and replace” on ice, increasing interest in practical reforms to improve insurance exchanges
Need for research to understand market realities and tradeoffs
This talk: Lessons from research on Massachusetts’ exchange
Created in 2006 “Romneycare” reform
Similar design and low-income population as ACA exchanges
Key factor: Good data (linked enrollment and claims) + Processes for making available to researchers
Two lessons:
Subsidies and affordability matter (a lot)
Narrow networks have a (selection) advantage

3. Paper #1: Subsidies and Insurance Demand
(Available as NBER Working Paper #23668)

4. Massachusetts Subsidy/Premium Discontinuities$0
$39
$77
$116
100
200
300
400
$ per month
135
150
250
Income, % of Poverty
Massachusetts Subsidy/Premium Discontinuities
Insurer Price
Public
Subsidies
5% of income
4% of income
3% of income
“Affordable Amt.”
(cheapest plan)
Enrollee
Premium

5. Share of Eligible Population Buying Insurance1
94%
76% .8
70%
58% .6
56% .4
44%
%Δ = -26%
%Δ = -27% .2
%Δ = -24%
Pmin=$0
Pmin = $39
Pmin = $77
Pmin = $116
135
150
200
250
300
Income, % of Poverty

6. Summary and Take-Aways
Modest premiums are major barrier to universal coverage
Each ~$40 / month premium increase reduces take-up by ~25%
Result: Take-up is highly incomplete (avg. = 63%)
True despite: Coverage mandate in MA, generous benefits (AV > 95%), and lower premiums than ACA (0-5% of income, vs. 2-10% in ACA)
Marginal enrollees are lower-cost
Enrollees deterred by higher premiums are 10-50% lower cost than avg.
Implication: Bigger subsidies mean lower average cost of enrolled pop.
Effect can be quite large: Decreasing premiums from $39 to $0 lowered average costs by $30-50 / month

7. Paper #2: Hospital Networks and Adverse Selection
(Available as NBER Working Paper #22600)

8. Narrow Networks and Selection
Narrow network plans are the norm in ACA exchanges [McKinsey, Polsky et al. (Penn LDI data), many others]
Particularly likely to exclude academic medical centers (McKinsey)
Two potential reasons narrow network plans may thrive:
Cost reduction: Negotiate discounts, steer patients to lower-cost settings
Favorable selection: Avoid high-cost consumers
Evidence from MA exchange plans’ coverage of “star” Partners Healthcare System (MGH, Brigham & Women’s)
2012 case study: Large plan drops Partners from network

9. Partners Dropped

10. Evidence of Selection: Plan Switching
RAdj. Cost = $6,852
RAdj. Cost = $4,340
RAdj. Cost = $3,318

11. Evidence of Cost Reductions: Non-Switchers
Note: Points are group x time coeffs. from regression with individual fixed effects.

12. Summary and Take-Aways
Excluding star hospitals benefitted plan both through cost reduction and favorable selection (about 50/50 magnitude)
Risk adjustment did not offset the favorable selection
Patients loyal to star hospitals tended to be unobservably sicker and high-cost because of their high-price care
Implication: Plans excluding star providers may have special advantage in exchanges
Mass.: All but one ConnectorCare exchange plan now excludes Partners
Policy implications less clear – Changes to encourage coverage may exacerbate star hospital bargaining power

13. Thank You!