Online Appendix to Hackmann, Kolstad, and Kowalski “Adverse Selection and an Individual Mandate: When Theory

Our model addresses selection at the extensive margin and abstracts from intensive margin selection amongst differentiated plan. Our modeling decision follows naturally from the policy intervention, the individual mandate, which affects the demand for health insurance in general. While our framework may not be accurate in other contexts, we think that the modeling assumptions are sensible in this application for the following two reasons. First, heterogeneity in plan generosity is limited in the Massachusetts individual health insurance market. According to Ericson and Starc (2012), 80% of the consumers in this market purchase bronze or silver plans, whose actuarial value varies between 60% and 70%.1 We think that the variation at the intensive margin is small relative to having no health insurance at all. Second, our modeling framework is consistent with plan heterogeneity if selection at the intensive margin is orthogonal to selection at the extensive margin. If so, we expect that the newly insured consumers purchase health insurance according to the observed market shares of the previously insured, holding the set of offered health insurance plans constant. In this case, we can aggregate heterogeneous plans to a single representative plan, which corresponds to a weighted average over the underlying individual plans, weighted by the plan market shares. Our framework models the willingness to pay and the costs of this representative plan. While our data do not allow us to disentangle differences in preferences between the previously insured and the newly insured on the one hand from changes in plan generosity on the other hand, we notice that the actuarial value of the most popular plans changes only modestly between the preand the post-reform years, see Table 6 in the main paper. Hence, we conclude that on net, these effects do not seem to affect our empirical results considerably.