Quality disclosure and the timing of insurers’ adjustments: Evidence from medicare advantage

Abstract

Mandatory quality disclosure often includes a period over which the quality of new entrants is unreported. This provides the opportunity for forward-looking firms to adjust product characteristics in advance of disclosure. Using comprehensive data on Medicare Advantage (MA) from 2007 to 2015, I exploit the design of the MA Star Rating program to examine the presence of forward-looking behavior among insurers. I find that high-quality insurers reduce prices leading up to quality disclosure, while low-quality insurers increase prices in advance of quality disclosure. These dynamics are consistent with firms anticipating a future change in consumer inertia and updating current-period prices accordingly.