Work in Progress
"What's Driving Uninsurance? Pay-When-You-Drive Contracts and Market Failures in Auto Insurance"
Abstract: Despite a universal insurance mandate, 30 million drivers in the United States do not carry the minimum automobile liability insurance required by law. Low income drivers are disproportionately likely to drive uninsured. Traditional auto insurance contracts charge a fixed monthly premium to cover unlimited driving, making them more attractive for higher mileage drivers (adverse selection) and encouraging excess driving on the margin (moral hazard). We introduce a Pay-When-You-Drive (PWYD) contract designed to increase take-up among low income drivers, which charges an incremental insurance premium per minute 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 monthly versus per-minute premiums), the amount of the upfront payment required, and the price of per-minute premiums. The design will test the potential of PWYD contracts to increase insurance take-up among uninsured drivers, and explore whether take-up decisions are driven by liquidity constraints or expected risk exposure. Additional price variation will allow us to estimate the elasticity of take-up and insured driving with respect to price, and to test for the presence of adverse selection and moral hazard in auto insurance markets.
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.