The Effect of the Number of Plans on Inertia and Adverse Selection: Evidence from the ACA Open Access

Cohen, Samuel (Spring 2023)

Permanent URL: https://etd.library.emory.edu/concern/etds/w66344919?locale=en
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Abstract

In this paper I estimate the effect the number of choices has on both adverse selection and inertia within a

market. Specifically, I am interested in whether choice overload can cause a decrease in adverse selection

and increase inertia. To do this I utilize data from the ACA exchanges at the national level for adverse

selection and inertia. I found that it is likely that an increase in plans correlates with an increase in adverse

selection as consumers can make informed decisions from a wider array of choices. Inertia also decreases

with an increase in choices. My model also estimates that at a high number of plans, both relationships

reverse as choice overload takes effect.

Table of Contents

1 Introduction 2

1.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.2 Background on the Affordable Care Act and the Exchanges . . . . . . . . . . . . . . . . . . . . 2

1.3 Choice Overload . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.4 Adverse Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.5 Inertia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1.6 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2 Methodology 5

2.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.2 Econometric Model for Adverse Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.3 Econometric Model for Inertia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3 Results 8

3.1 Adverse Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3.2 Inertia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

4 Conclusion 11

4.1 Limitations and Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

4.2 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

5 References 13

6 Appendix 14

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