Estimating the Price Elasticity of Demand of the Premium on New Enrollment in the ACA Marketplaces

Abstract

The U.S. Affordable Care Act’s health insurance Marketplaces rely on open-enrollment periods (OEP) to attract new consumers, yet the extent to which premiums affect enrollment is unclear. We aim to find the price elasticity of demand for these plans. We have two hypotheses: 1) demand is elastic, so the percentage change in new consumers exceeds the percentage change in average premiums, or 2) demand is inelastic, so the opposite holds. We compare a baseline model to progressively more rigorous models, our final model being a fixed effects model that controls for time trends that affect all states equally and state-specific characteristics. The baseline estimate suggests a moderately elastic response of –0.8, meaning a 1 percent premium increase predicts a 0.8 percent drop in new enrollment. However, introducing state fixed effects reduces the elasticity to –0.4 percent, and adding time fixed effects further narrows down the elasticity to –0.2 percent, which we found is not statistically significant. Much of the observed premium-enrollment relationship in pooled data is explained by state-specific characteristics, which could include a given states’ regulations, insurer competition, or outreach efforts, rather than changes in the premium. We conclude that while a change in the premium can influence enrollment, its impact is statistically insignificant once a greater context is accounted for. Policymakers should therefore aim to combine premium subsidies or rate regulation with state-specific strategies. These strategies can include targeted efforts to subsidy design, competition, or outreach to more effectively boost ACA Marketplaces’ enrollment.