We study insurers' use of prescription drug formularies to screen consumers in the ACA Health Insurance exchanges. We begin by showing that exchange risk adjustment and reinsurance succeed in neutralizing selection incentives for most, but not all, consumer types. A minority of consumers, identifiable by demand for particular classes of prescription drugs, are predictably unprofitable. We then show that contract features relating to these drugs are distorted in a manner consistent with multidimensional screening. The empirical findings support a long theoretical literature examining how insurance contracts offered in equilibrium can fail to optimally trade off risk protection and moral hazard.
Authors
![Daniel Prinz](/sites/default/files/styles/square_desktop/public/2022-06/Daniel_Prinz.jpg?itok=sTIJ6Hnf)
Research Associate World Bank
Daniel is an economist at the World Bank. His research covers topics in public finance, including social insurance, taxation, and inequality.
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
Michael Geruso
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
Timothy Layton
Journal article details
- DOI
- 10.1257/pol.20170014
- Publisher
- American Economic Journal: Economic Policy
- JEL
- D82, G22, H51, I13, I18
- Issue
- Volume 11, Issue 2, May 2019, pages 64-107
Suggested citation
M, Geruso and T, Layton and D, Prinz. (2019). 'Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges' 11(2/2019), pp.64–107.
More from IFS
Understand this issue
![Female surgeon](/sites/default/files/styles/square_desktop/public/2024-04/female-surgeon-2.jpg?itok=DxoZaqMs)
If you can’t see it, you can’t be it: role models influence female junior doctors’ choice of medical specialty
24 April 2024
![Surgery](/sites/default/files/styles/square_desktop/public/2024-02/NHS2.jpg?itok=OQb9UVp8)
The NHS waiting list: when will it come down?
29 February 2024
![Ed Davey](/sites/default/files/styles/square_desktop/public/2024-06/Ed-Davey-.jpg?itok=ztS9cL-S)
Liberal Democrat manifesto: a reaction
10 June 2024
Policy analysis
![Shopping street](/sites/default/files/styles/square_desktop/public/2024-06/Street-scene-.jpg?itok=R39cR6Xp)
How do the last five years measure up on levelling up?
19 June 2024
![Doctor patient consultation](/sites/default/files/styles/square_desktop/public/2022-12/Doctor-patient-consultation_0.jpg?itok=6MvhPZ62)
A response to the Conservatives’ proposals to reduce growth in the health-related benefits bill
8 June 2024
![Doctor uses tablet](/sites/default/files/styles/square_desktop/public/2024-05/Doctor-checks-tablet_0.jpg?itok=WW7QqUXF)
IFS response to Labour Party announcement on NHS waiting lists
28 May 2024
Academic research
![Working Paper Cover](/sites/default/files/styles/portrait/public/2024-05/WP202421-The-role-of-hospital-networks-in-individual-mortality_Page_01.jpg?itok=BudO5o_w)
The role of hospital networks in individual mortality
13 May 2024
![Working Paper Cover](/sites/default/files/styles/portrait/public/2024-05/WP202419-Forced-displacement-mental-health-and-child-development-evidence-from-the-rohingya-refugees_Page_01.jpg?itok=ZnUTIDEq)
Forced displacement, mental health, and child development: Evidence from Rohingya refugees
10 May 2024
![Working paper cover](/sites/default/files/styles/portrait/public/2024-04/WP202411-A-senior-doctor-like-me-gender-match-and-occupational-choice_Page_01.jpg?itok=1aMC1EiX)
A senior doctor like me: Gender match and occupational choice
24 April 2024