Polarisation and Public Policy: Political Adverse Selection under Obamacare

Abstract Politicising policies designed to address market failures can diminish their effectiveness. We document a pattern of ‘political adverse selection’ in the health insurance exchanges established under the Affordable Care Act (colloquially, ‘Obamacare’): Republicans enrolled at lower rates than Democrats and independents, a gap driven by healthier Republicans. This selection raised public subsidy spending by approximately $155 per enrollee annually (3.2% of average cost). We fielded a survey to show that this selection does not exist for other insurance products. Lower enrolment and higher costs are concentrated in more Republican areas, potentially contributing to polarised views of the policy.