Choosing a health insurer involves more than comparing premiums. Consumers may also consider whether an insurer is financially strong enough to pay claims. New research co-authored by Po-Lin Wang, assistant professor of risk management and insurance at the University of South Florida, examines whether the Affordable Care Act (ACA) made financial strength more consequential.
Using data on U.S. health insurers from 1996 through 2021, the researchers find that financially weaker insurers charged lower prices and sold fewer policies. This suggests that the market already imposed costs on insurers with lower financial ratings.
The ACA did not strengthen this discipline across the health insurance market. The clearest change appeared among insurers participating in ACA exchanges. After the exchanges opened, rating downgrades were associated with larger reductions in the prices exchange insurers could charge than for insurers outside the exchanges. In other words, financial weakness became more costly for insurers competing in the ACA marketplaces.
Po-Lin Wang
The researchers did not find a similar change in the number of policies sold through the exchanges, a pattern consistent with premium subsidies making demand less responsive to financial ratings. The findings, published in the North American Actuarial Journal, suggest that greater transparency can strengthen market accountability when consumers can compare insurers and act on the information.
Authors: James M. Carson and David L. Eckles, University of Georgia; Joshua D. Frederick, Georgia Southern University; Po-Lin Wang, University of South Florida.