Estimating Equilibrium in Health Insurance Exchanges: Price Competition and Subsidy Design under the ACA.

This article analyzes the interaction between insurer competition and premium subsidy design in private, publicly sponsored health insurance markets, focusing on the Affordable Care Act (ACA) marketplaces in California from 2014 to 2017. Using a detailed empirical model that accounts for adverse selection, heterogeneous preferences, and alternative insurer pricing behaviors, the study finds that oligopoly pricing better explains observed market outcomes than perfect competition. The analysis shows that ACA’s current price-linked subsidy design, which adjusts subsidies based on insurers’ premiums, leads to higher premiums and lower enrollment, especially in concentrated markets. Counterfactual simulations suggest that shifting subsidy generosity toward younger, lower-cost "young invincibles" can reduce premiums for all enrollees, increase overall enrollment and insurer profits, and lower average government spending, with these results robust to different market conduct assumptions and degrees of moral hazard.