Jaffe, Sonia. and Shepard, Mark.  <br/><br/>
Price-linked subsidies and imperfect competition in health insurance  

 - American Economic Journal Economic Policy  
 - 12(3), Aug, 2020: p.279-311 
<br/><br/> Policymakers subsidizing health insurance often face uncertainty about future market prices. We study the implications of one policy response: linking subsidies to prices to target a given postsubsidy premium. We show that these price-linked subsidies weaken competition, raising prices for the government and/or consumers. However, price-linking also ties subsidies to health care cost shocks, which may be desirable. Evaluating this tradeoff empirically, using a model estimated with Massachusetts insurance exchange data, we find that price-linking increases prices 1–6 percent, and much more in less competitive markets. For cost uncertainty reasonable in a mature market, these losses outweigh the benefits of price-linking. – Reproduced <br/>