Abstract: We document that states that experienced website glitches in the ACA’s first year faced higher average costs that persisted into future years. These dynamics are inconsistent with the standard strategic-pricing model, which requires non-localized common knowledge about market conditions, but are consistent with price-taking. Initial conditions can have a permanent effect—including convergence to a Pareto-dominated, stable equilibrium—under conditions that we show are plausible in this setting. Changing the fine from a fixed amount to a fraction of equilibrium prices increases the likelihood of reaching a Pareto-efficient equilibrium without increasing the equilibrium fine collected.
Key Words: Affordable Care Act, Multiple Equilibria, Initial Conditions