Neale Mahoney

Bankruptcy as Implicit Health Insurance

This paper examines the implicit health insurance that households receive from the ability to declare bankruptcy. Exploiting multiple sources of variation in asset exemption law, I show that uninsured households with a greater financial cost of bankruptcy make higher out-of-pocket medical payments, conditional on the amount of care received. In turn, I find that households with greater wealth at risk are more likely to hold health insurance. The implicit insurance from bankruptcy distorts the insurance coverage decision. Using a microsimulation model, I calculate that the optimal Pigovian penalties are three-quarters as large as the average penalties under the Affordable Care Act.

Imperfect Competition in Selection Markets

Policies to correct market power and selection can be misguided when these forces coexist. We build a model of symmetric imperfect competition in selection markets that parameterizes the degree of market power and selection. We use graphical price-theoretic reasoning to characterize the interaction between these forces. Using a calibrated model of health insurance, we show that the risk adjustment commonly used to offset adverse selection can reduce coverage and social surplus. Conversely, in a calibrated model of subprime auto lending, realistic levels of competition can generate an oversupply of credit, implying that greater market power is desirable.

Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage

A central question in the debate over privatized Medicare is whether increased government payments to private Medicare Advantage (MA) plans generate lower premiums for consumers or higher profits for producers. Using difference‑in‑differences variation brought about by a sharp legislative change, we find that MA insurers pass through 45 percent of increased payments in lower premiums and an additional 9 percent in more generous benefits. We show that advantageous selection into MA cannot explain this incomplete pass‑through. Instead, our evidence suggests that market power is important, with premium pass‑through rates of 13 percent in the least competitive markets and 74 percent in the most competitive.

A Simple Framework for Estimating Consumer Benefits from Regulating Hidden Fees

AbstractPolicy makers are increasingly turning to regulation to reduce hidden or nonsalient fees. Yet the overall consumer benefits from these policies are uncertain because firms may increase other prices to offset lost fee revenue. We show that the extent to which firms offset reduced hidden-fee revenue is determined by a simple equation that combines two sufficient statistics, which can be estimated or calibrated in a wide range of settings: a parameter that captures the degree of market competitiveness and a parameter that captures the salience of the hidden fee. We provide corroborating evidence for this approach by drawing upon evidence on the effect of fee regulation under the 2009 Credit Card Accountability Responsibility and Disclosure Act. We also illustrate the applicability of our approach by using the framework to assess a hypothetical regulation of airline baggage fees.

Externalities and Taxation of Supplemental Insurance: A Study of Medicare and Medigap

Most health insurance policies use cost-sharing to reduce excess utilization. The purchase of supplemental insurance can blunt the impact of this cost-sharing, potentially increasing utilization and exerting a negative externality on the primary insurance provider. This paper estimates the effect of private Medigap supplemental insurance on public Medicare spending using Medigap premium discontinuities in local medical markets that span state boundaries. Using administrative data on the universe of Medicare beneficiaries, we estimate that Medigap increases an individual’s Medicare spending by 22.2%. We find that the take-up of Medigap is price sensitive with an estimated demand elasticity of -1.8. Using these estimates, we calculate that a 15% tax on Medigap premiums would generate combined tax revenue and cost savings of

Do Banks Pass Through Credit Expansions to Consumers Who Want to Borrow

12.9 billion annually. A Pigouvian tax would generate combined annual savings of

Do Banks Pass through Credit Expansions to Consumers Who want to Borrow

31.6 billion.

Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports

We examine the ability of policymakers to stimulate household spending during the Great Recession by reducing banks’ cost of funds. Using panel data on 8.5 million credit cards and 743 credit limit regression discontinuities, we find that the one-year marginal propensity to borrow (MPB) is declining in credit score, falling from 59% for consumers with FICO scores below 660 to essentially zero for consumers with FICO scores above 740. We use the same credit limit discontinuities, combined with a model of lending, to estimate banks’ marginal propensity to lend (MPL) out of a decrease in their cost of funds. For the lowest FICO score consumers, higher credit limits sharply reduce profits from lending, limiting banks’ incentives to pass through credit expansions to these consumers. We conclude that banks’ MPL is lowest for consumers with the highest MPB and discuss the implications for policies that aim to stimulate the economy through banks.

Competition Policy in Selection Markets

We propose a new approach to studying the pass-through of credit expansion policies that focuses on frictions, such as asymmetric information, that arise in the interaction between banks and borrowers. We decompose the effect of changes in banks’ cost of funds on aggregate borrowing into the product of banks’ marginal propensity to lend (MPL) to borrowers and those borrowers’ marginal propensity to borrow (MPB), aggregated over all borrowers in the economy. We apply our framework by estimating heterogeneous MPBs and MPLs in the U.S. credit card market. Using panel data on 8.5 million credit cards and 743 credit limit regression discontinuities, we find that the MPB is declining in credit score, falling from 59% for consumers with FICO scores below 660 to essentially zero for consumers with FICO scores above 740. We use a simple model of optimal credit limits to show that a bank’s MPL depends on a small number of parameters that can be estimated using our credit limit discontinuities. For the lowest FICO score consumers, higher credit limits sharply reduce profits from lending, limiting banks’ optimal MPL to these consumers. The negative correlation between MPB and MPL reduces the impact of changes in banks’ cost of funds on aggregate household borrowing, and highlights the importance of frictions in bank-borrower interactions for understanding the pass-through of credit expansions.

Mandatory Medicare Bundled Payment Program for Lower Extremity Joint Replacement and Discharge to Institutional Postacute Care: Interim Analysis of the First Year of a 5-Year Randomized Trial

Credit reports are used in nearly all consumer lending decisions and, increasingly, in hiring decisions in the labor market, but the impact of a bad credit report is largely unknown. We study the effects of credit reports on financial and labor market outcomes using a difference-in-differences research design that compares changes in outcomes over time for Chapter 13 filers, whose personal bankruptcy flags are removed from credit reports after 7 years, to changes for Chapter 7 filers, whose personal bankruptcy flags are removed from credit reports after 10 years. Using credit bureau data, we show that the removal of a Chapter 13 bankruptcy flag leads to a large increase in credit scores, and an economically significant increase in credit card balances and mortgage borrowing. We study labor market effects using administrative tax records linked to personal bankruptcy records. In sharp contrast to the credit market effects, we estimate a precise zero effect of flag removal on employment and earnings outcomes. We conclude that credit reports are important for credit market outcomes, where they are the primary source of information used to screen applicants, but are of limited consequence for labor market outcomes, where employers rely on a much broader set of screening mechanisms.