Polarization and Public Policy: Political Adverse Selection under Obamacare

Politicizing policies designed to address market failures can diminish their effectiveness. We document a pattern of “political adverse selection” in the health insurance exchanges established under the Affordable Care Act (ACA; “Obamacare” in political debates): Republicans enrolled at lower rates than Democrats and independents, a gap driven by healthier Republicans. This selection raised public subsidy spending by approximately $124 per enrollee annually (2.4% of average cost). We field a survey to show this selection does not exist for other insurance products. Lower enrollment and higher costs are concentrated in more Republican areas, potentially contributing to polarized views of the policy.