Ben Handel, Assistant Professor of Economics; Faculty Research Fellow at the National Bureau of Economic Research.
Jonathan Kolstad, Assistant Professor of Economic Analysis and Policy at the Haas School of Business; Faculty Research Fellow at the National Bureau of Economic Research.
The Opportunity Lab’s Health Initiative conducts and synthesizes economic research with the primary goals of improving lives and reducing inequality through the more efficient provision of health care services. The core research team, led by Professors Benjamin Handel and Jonathan Kolstad, partners with policy organizations and business to deliver key research insights. The Initiative focuses on research that uses sophisticated economic methods to study large micro-level datasets on consumer and producer and behavior in health care markets. Some of the primary research topics include consumer behavior and market regulation in health insurance markets, physician performance in the context of different payment and technology mechanisms, consumer choices of health care services and providers, and equitable systems for national health care provision.
Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We leverage a natural experiment at a large self-insured firm that required all of its employees to switch from an insurance plan that provided free health care to a nonlinear, high-deductible plan. The switch caused a spending reduction between 11.8% and 13.8% of total firm-wide health spending. We decompose this spending reduction into the components of (i) consumer price shopping, (ii) quantity reductions, and (iii) quantity substitutions and find that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g., preventive services) and potentially wasteful care (e.g., imaging services). To better understand these changes, we study how consumers respond to the complex structure of the high-deductible contract. Consumers respond heavily to spot prices at the time of care, reducing their spending by 42% when under the deductible, conditional on their true expected end-of-year price and their prior year end-of-year marginal price. There is no evidence of learning to respond to the true shadow price in the second year post-switch.
- Handel, Benjamin and Jonathan Kolstad. "Health Insurance for 'Humans': Information Frictions, Plan Choice, and Consumer Welfare." American Economic Association, 2015.
Traditional models of insurance choice are predicated on fully informed and rational consumers protecting themselves from exposure to financial risk. In practice, choosing an insurance plan is a complicated decision often made without full information. In this paper we combine new administrative data on health plan choices and claims with unique survey data on consumer information to identify risk preferences, information frictions, and hassle costs. Our additional friction measures are important predictors of choices and meaningfully impact risk preference estimates. We study the implications of counterfactual insurance allocations to illustrate the importance of distinguishing between these micro-foundations for welfare analysis.
- Handel, Benjamin, Igal Hendel, and Michael D. Whinston. "Equilibria In Health Exchanges: Adverse Selection Versus Reclassification Risk." Econometrica, 2015.
This paper studies regulated health insurance markets known as exchanges, motivated by the increasingly important role they play in both public and private insurance provision. We develop a framework that combines data on health outcomes and insurance plan choices for a population of insured individuals with a model of a competitive insurance exchange to predict outcomes under different exchange designs. We apply this framework to examine the effects of regulations that govern insurers' ability to use health status information in pricing. We investigate the welfare implications of these regulations with an emphasis on two potential sources of inefficiency: (i) adverse selection and (ii) premium reclassification risk. We find substantial adverse selection leading to full unraveling of our simulated exchange, even when age can be priced. While the welfare cost of adverse selection is substantial when health status cannot be priced, that of reclassification risk is five times larger when insurers can price based on some health status information. We investigate several extensions including (i) contract design regulation, (ii) self-insurance through saving and borrowing, and (iii) insurer risk adjustment transfers.
- Cox, Natalie, Benjamin Handel, Jonathan Kolstad, and Neale Mahoney. "Messaging and the Mandate: The Impact of Consumer Experience on Health Insurance Enrollment Through Exchanges." American Economic Association, 2015.
The ability of web-based retailers to learn about and provide targeted consumer experiences is touted as an important distinction from traditional retailers. In principal, web-based insurance exchanges could benefit from these advantages. Using data from a large-scale experiment by a private sector health insurance exchange we estimate the returns to experimentation and targeted messaging. We find significant improvements in conversions in one treatment tested. Underlying the average impact were both inter temporal and demographic heterogeneity. We estimate that learning and targeted messaging could increase insurance applications by approximately 13 percent of the baseline conversion rate.
- Hackmann, Martin, Jonathan T. Kolstad, and Amanda E. Kowalski. "Adverse Selection and an Individual Mandate: When Theory Meets Practice." American Economic Association, 2015.
We develop a model of selection that incorporates a key element of recent health reforms: an individual mandate. Using data from Massachusetts, we estimate the parameters of the model. In the individual market for health insurance, we find that premiums and average costs decreased significantly in response to the individual mandate. We find an annual welfare gain of 4.1 percent per person or $51.1 million annually in Massachusetts as a result of the reduction in adverse selection. We also find smaller post-reform markups.