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Contribution-floor mandates: a welfare framework and evidence from Chile
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Many health insurance systems link premiums to income through contribution floors: enrollees must spend at least a fixed share of their income on health insurance. These income-based mandates are economically distinct from the penalty-based mandates studied in the U.S. context, because they create a wedge between the premium paid and the plan’s actuarial price. I develop a framework that decomposes the welfare effect of a contribution-floor mandate change into a fiscal channel, the mechanical transfer arising from the price floor, and an equilibrium channel, the behavioral response through plan switching and risk pool recomposition coupled with supply-side responses. I implement the framework using administrative data from Chile’s private health insurance market (ISAPREs), where enrollees must pay at least 7% of their income in premiums. Raising the mandate from 7% to 8% of income redistributes approximately $38.9 million annually from enrollees to insurers while generating essentially no net welfare: about 12 thousand USD, three orders of magnitude smaller than the gross transfer. The equilibrium channel is negligible. Because the mandate operates as a near-pure transfer, it is dominated as a redistributive instrument by a revenue-equivalent direct cash transfer, which delivers roughly three times the distributionally weighted welfare.