What does this research mean for the field?

Subsidy-induced moral hazard combined with community rating increases premiums and lowers enrollment among unsubsidized individuals, creating a newly identified welfare loss that accounts for approximately 25% of total welfare loss. Novelty: ClaimNovelty.NOVEL_FINDING. Consensus alignment: ConsensusAlignment.ESTABLISHES_NEW_DIRECTION.

What question did this study set out to answer?

To theoretically model and empirically quantify how cost-sharing subsidies combined with community rating cause moral hazard-induced unraveling and welfare loss in health insurance markets.

August 24, 2026Journal of Risk & InsuranceOpen Access

Moral hazard induced unraveling: Theory and evidence from the Affordable Care Act

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Authors

CECameron EllisUniversity of Iowa MEMeghan EssonUniversity of Iowa ELEli LiebmanUniversity of Georgia

Discussion

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Implication

Empirical analysis reveals cost-sharing subsidies induce moral hazard and raise premiums in ACA exchanges, indicating subsidized utilization can unravel private insurance markets.

Key Points

To theoretically model and empirically quantify how cost-sharing subsidies combined with community rating cause moral hazard-induced unraveling and welfare loss in health insurance markets.
Developed a theoretical framework showing how cost-sharing subsidies and community rating mimic adverse selection to trigger insurance market unraveling.
Utilized exogenous variation in the number of subsidized enrollees across Affordable Care Act (ACA) exchanges to quantify premium changes and welfare effects.
Subsidy-induced moral hazard increased premiums, leading to a 6.2 percentage point reduction in enrollment among unsubsidized individuals.
Moral hazard-induced market unraveling was estimated to account for approximately 25% of total welfare loss in the studied insurance exchanges.

Cite This Study

Ellis et al. (2026) studied this question.

synapsesocial.com/papers/6a8c009fbca056c88e6df6d7 https://doi.org/10.1111/jori.70075

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Implication

Empirical analysis reveals cost-sharing subsidies induce moral hazard and raise premiums in ACA exchanges, indicating subsidized utilization can unravel private insurance markets.

Moral hazard induced unraveling: Theory and evidence from the Affordable Care Act

Discussion

Member takes

Implication

Key Points

Cite This Study

Moral hazard induced unraveling: Theory and evidence from the Affordable Care Act

Discussion

Member takes

Implication

Key Points

Cite This Study

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