Keith Marzilli Ericson

Professor of Markets, Public Policy, and Law at Questrom School of Business, Boston University


Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange

Review of Economics and Statistics, 2015. (joint with Amanda Starc)Also see NBER Working Paper 18089.

Insurance markets often contain pricing regulation, such as community rating. I examine how pricing regulation interacts with imperfect competition.

When markets are imperfectly competitive,  these regulations link prices for consumers that differ not only in costs, but also in preferences.  Tightening community rating regulation doesn’t merely move the price toward the average cost, since firms price to the marginal enrollee. As a result, community rating regulation can affect firm profits and market efficiency. We look at the Massachusetts Health Insurance Exchange (HIX), and show that younger individuals are much more price sensitive than older individuals.  Thus, insurers should charge higher markups on older individuals. Tighter community rating restrictions transfer money from younger consumers to older consumers, but also from firm profits to consumer surplus.

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