A Quantitative Theory of Information and Health Insurance Reform

by Brendan LaCerda, University of Virginia

The purpose of this research is to analyze the general equilibrium and welfare effects of
two major changes to the individual health insurance market introduced by the Patient Protection and Affordable Care Act of 2010 (ACA): (1) the individual mandate, along with its penalties for going uninsured and subsidies for the needy, and (2) the removal of insurers’ ability to condition premiums on medical expenditure risk. Specifically, I investigate insurers’ ability to use the information revealed by households’ desired level of coverage to infer their medical expenditure risk and, in response, consumers’ willingness and ability to signal different levels of coverage. Any resulting change in insurance prices and coverage will influence both how much people save and how they are impacted by health shocks.

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