Essays on Health Insurance and Industrial Organization
This dissertation addresses questions in the health insurance and industrial organization fields. In the first chapter, I investigate how gender-based pricing bans affect health insurance markets offering long-term contracts. In thesecond chapter, I examine lapsing, and its implications, in a health insurance market offering long-term contracts. In the third chapter, I study the long-term implications of product unavailability in the beer market. Chapter 1: In theory, guaranteed renewable (GR) insurance contracts can efficiently insure against reclassification risk without causing adverse selection on pre-existing conditions. In practice, however, adverse selection can still arise on other dimensions. In 2020, in response to protests demanding gender equality, Chile banned gender-based pricing in its private health insurance market. I investigate how this policy impacts Chile’s health care system, which consists of a low-quality public option and a private market characterized by the use of GR contracts. I find that, if the ban is implemented, prices in the private market would increase as low-cost men switch to the public option and high-cost women enter. Overall, the regulation causes a shift of surplus from men to women. The ban is regressive, as high-income groups benefit more than low-income groups, creating a trade-off between gender-based equity and income-based equity. Subsidies that induce low-cost enrollees to remain in the private market are the most effective mitigation strategy to contain higher premiums. Finally, relative to non-GR contracts, the number of individuals choosing the private market is lower under guaranteed renewability. Chapter 2: Guaranteed renewable (GR) insurance contracts have the potential to efficiently protect individuals against reclassification risk without the negative side effects of price regulation, such as adverse selection. For these contracts to work properly, consumers must pay front-loaded premiums when healthy and stick with their contracts for many years in order to subsidize their future high-risk selves. This paper studies lapsing in the Chilean private health insurance markets, a system characterized by the offering of GR contracts. I find that most policyholders lapse their insurance plans just a few years after signing their contracts. I show that policies and lapse patterns predicted by standard theoretical models of long-term contracts are the opposite of those observed empirically. Finally, premiums increasing over time, and consumers lapsing their contracts because of those price changes, are a key determinant of insurers’ profits. Chapter 3: The marketing literature has investigated the processes potentially leading to brand building and the benefits these brands may enjoy over time. One of those possible benefits is resilience in the face of a reputational challenge or a crisis. This chapter focuses on the long-term implications of product unavailability. We leverage a quasi-natural experiment that exogenously removed the top leading beer brands from retail stores for several weeks. We test whether these prolonged stockouts can erode market shares beyond the current or subsequent purchase occasions and study the potential mechanisms at play. Using panel data of consumer purchases before and after the product shortage, we observe that the top brands only partially recovered their pre-stockout market shares, especially among their most frequent buyers. We identify a sizable portion of consumers who tried small brands for the first time during the stockout period and remained to buy those products persistently. To control for prices, state dependence, and product availability, we estimate a choice model with heterogeneous preferences and find that exposure to stockouts has long-run effects on purchase behavior. We interpret our estimates as evidence that consumers facing a restricted choice set may learn or become aware of competing products with long-lasting consequences on preferences.