Association for Public Policy Analysis & Management

As part of the Affordable Care Act, states were given the option to expand Medicaid using mostly federal dollars to cover individuals with incomes up to 138% of the poverty level. States that chose to expand effectively removed many low-income individuals from the health care exchanges, altering the risk-pool faced by insurance companies. Using variation in the income distribution in coverage regions within states, we examine how Medicaid expansion affected the number of insurance companies offering plans and the premium of the benchmark plan in the first year of the health care exchanges. Controlling for the population that is likely to consider purchasing insurance on the federal exchange, we find that a 10% increase in the number of individuals aged 18-64 with income between 100 and 138% of the poverty level decreases premiums by 0.4% in states that expanded Medicaid. Moving from the 25th to 75th percentile of the number of individuals in this income range would lower premiums by 16%. We find no effect on the number of insurers indicating that the change in risk-pool was not enough to overcome barriers to entry.