The Micro Seminar:
Time: 12:15 pm – 13:30 pm
Date: 30th of January 2023

Room 3001

Sebastian Fleitas (University of Leuven) “Reclassification Risk in the Small Group Health Insurance Market”

Abstract : “We evaluate reclassification risk in the small group health insurance market from a period before ACA community rating regulations. Reclassification risk in this setting is of key policy relevance and also a matter of debate. We use detailed claims and premiums data from a large insurance company and control non-parametrically for selection. We find a pass through of 16% from changes in health risk to changes in premiums, with a stronger equilibrium relationship between premiums and risk. This pattern is consistent with the insurer implicitly offering “guaranteed renewability” contracts with one-sided pricing commitment. We further find that groups whose health risk decreases have premiums that are more responsive to risk, which the guar- anteed renewability model attributes to ex post renegotiation. The observed pricing policy adds 60% of the consumer welfare gain from community rating relative to experience rating. The welfare gains are limited because employers and employees switch coverage frequently. ”

Sponsors:
CREST