Please note: All research in progress seminars are off-the-record. Any information about methodology and/or results are embargoed until publication.
In the private market for Medicare supplemental insurance, also known as Medigap, policymakers have experimented with several regulatory solutions, including an initial open enrollment period, guaranteed renewal, bans on differential pricing, and bans on rejections. In this paper, I study how bans on differential pricing and rejections affect premiums and coverage levels, compared to a regime that combines an initial open enrollment period with guaranteed renewal. I document two important effects. First, bans on differential pricing and rejections lead to substantial cross-subsidization from young to old. Under a ban on differential pricing, the youngest buyers see premiums that are $240 (16 percent) higher; when this is combined with a ban on rejections, the youngest buyers see premiums that are $640 (36 percent) higher. Second, a ban on rejections undoes consumers’ incentives to buy early. A ban on differential pricing and rejections leads to a 12 percentage point (46 percent) reduction in early buying. I present evidence for the importance of this mechanism, which is often assumed in the theoretical literature but seldom documented empirically. This interpretation is corroborated by an event study of individuals who experience health shocks.