This project tests how changes in health insurance market competition affect the generosity of cost-sharing and covered benefits. Past empirical research suggests that reducing insurer competition can increase plan premiums. However, profit-maximizing insurers also choose other plan characteristics, such as copays, deductibles, and covered benefits. When competition decreases, it may be optimal for insurers to reduce the generosity of these benefits as well. Understanding the effect of competition on insurance generosity is crucial for current health policy, as recent insurance market reforms such as the Affordable Care Act rely on competition as the key mechanism for improving access and benefit quality. Despite the policy implications, the literature on the relationship between competition and benefits is limited and conflicting. To test for effects of insurer competition on the generosity of cost-sharing and covered benefits, this project uses a quasi-experimental design that leverages variation in competition in the Medicare Advantage (MA) market. This variation was caused by a change in Medicare policy that required private-fee-for-service (PFFS) plans to form provider networks. In response to this change, many insurers cancelled plans. These cancellations caused variation in competition in the markets where these plans were offered, by reducing insurers'market share or causing insurers to exit the market. To identify causal effects, this study focuses on changes in competition caused by 19 insurers who cancelled all PFFS contracts nationally. Changes in competition caused by these cancellations are plausibly unrelated to confounding variables, as these insurers cancelled all PFFS plans rather than selectively exiting less profitable markets.
Aim 1 will test for a relationship between competitio and overall plan generosity, using a modified difference-in-difference (DinD) framework and beneficiary expected out-of-pocket costs, a summary measure of health plan generosity calculated on behalf of Medicare. The modified DinD framework identifies the effects of competition by comparing benefits within markets before and after cancellation and across markets with different levels of cancellation. County- and year-fixed effects help control for unobserved variation in benefits. To further test whether changes are related to changes in competition, differing effects by baseline levels of market competition and differences in plan substitution patterns can be assessed.
Aim 2 uses the same framework to test for effects of competition on deductibles and copays for specific services.
Aim 3 will test whether these effects are mediated by the health risk of enrollees in cancelled plans;for instance, if insurers are operating in markets with sicker enrollees, they may further degrade benefits to deter sicker beneficiaries from enrolling. Data to construct plan shares comes from aggregate, publicly-available Medicare enrollment data;data on benefits comes from the out-of-pocket cost database and Medicare Options Compare. Data on plan-level health risk scores comes from publicly-available plan payment data.

Public Health Relevance

Understanding the effect of insurer competition on health plan generosity is crucial for policy, as recent health insurance coverage expansions such as the Affordable Care Act and Medicare Part D rely on competition to facilitate the affordability of comprehensive coverage. Moreover, though plan features such as copays and deductibles can promote the use of high-value care, if cost-sharing generosity is tied to insurer competition, then benefits in less competitive markets may not be designed to promote economically efficient use of care. As the majority of Americans rely on private insurers to provide health insurance benefits, assessing whether insurer competition affects plan generosity is a key contribution to health policy research.

National Institute of Health (NIH)
Agency for Healthcare Research and Quality (AHRQ)
Dissertation Award (R36)
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HSR Health Care Research Training SS (HCRT)
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Willis, Tamara
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Harvard Medical School
Schools of Medicine
United States
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