Adverse Selection in ACA Exchange Markets: Evidence from Colorado

This study tests for adverse selection in the Affordable Care Act (ACA) health insurance exchanges established in 2014, and quantifies the welfare consequences. Using a new statewide dataset of medical claims from Colorado, I use plausibly exogenous premium variation generated by geographic discontinuities to test for selection. Specifically, each $1 increase in monthly premiums causes a $0.85–0.95 increase in annual medical expenditures of the insured population in 2014, with attenuated effects in 2015. These estimates are consistent with the prevalence of chronic conditions, and difference-in-differences estimates. The results offer the first quasi-experimental evidence of adverse selection in the ACA markets. (JEL D82, G22, H51, H75, I13, I18)