Inertia, Market Power, and Adverse Selection in Health Insurance: Evidence from the ACA Exchanges

Abstract We study how inertia interacts with market power and adverse selection in health insurance. We incorporate inertia into a model of plan selection and price competition, and estimate it using data from the California ACA exchange. We estimate inertia costs equaling 26% of average premiums. Our simulations indicate that inertia exacerbates market power, but has minimal interaction with selection. Eliminating inertia reduces average premiums by 6.6%. Maintaining premium-linked subsidies or reducing consumer churn increases the impact of inertia by enhancing market power. Provider network attachment is an important impediment to plan switching, but substantial inertia remains after accounting for networks.