"Accelerating Demand for Auto Insurance: Prepaid Flexible Contracts and Willingness-to-Pay for Lower Liquidity Requirements"
Abstract: Despite a universal insurance mandate, 30 million drivers in the United States do not carry the minimum automobile insurance required by law. Traditional contracts pool high and low frequency drivers and require large upfront payments to enroll. High upfront premiums may make these contracts unappealing to low income drivers, who also drive fewer miles on average. We introduce a flexible "prepaid" auto insurance contract designed to increase take-up among uninsured drivers by lowering liquidity requirements and charging drivers an incremental premium per day of driving. We randomize auto insurance contract offers to uninsured drivers in California (where 15% of drivers lack insurance), varying the flexibility of the contract (traditional versus prepaid), the price of coverage, and quantity discounts for longer coverage terms. The design tests the potential of flexible prepaid contracts to increase insurance take-up among uninsured drivers, estimates willingness-to-pay for lower liquidity requirements, and explores potential barriers to insurance take-up.
Abstract: Medical debt is potentially a large burden for many Americans—with 44 million individuals holding an aggregate $75 billion in medical debt. While these nominal amounts are staggering, it is unclear to what extent medical debt harms financial well-being. Medical debt recovery rates are low, suggesting that the pure “balance sheet” cost of medical debt is modest for most individuals. Yet medical debt may harm individuals through lower credit scores, higher interest rates, and reduced access to credit—impairing economic opportunities and perhaps even locking individuals in “debt traps.” Collaborating with RIP Medical Debt, a non-profit that buys and abolishes medical debt, researchers will implement a randomized-control trial to study the impact of medical debt. Medical debt will be forgiven for randomly chosen “treated” individuals, whose financial outcomes will be compared to otherwise similar “control” individuals for whom medical debt will not be forgiven.
Abstract: Behavioral frictions in insurance exchanges affect not only the plan a consumer selects, but also the menu of plans insurers offer. We investigate an information friction in Medicare Advantage—beneficiaries pay two premiums, and one is much more salient. We find a larger demand elasticity for the salient versus non-salient premium. A model of insurer plan design produces simulated premiums matching the observed distribution using these “behavioral” elasticities, but not when assuming equal elasticities across the two premiums. Removing the friction increases enrollment in low-premium plans, increasing consumer surplus $5/year with supply fixed and $73/year when including a supply response.