Abstract: We study the dynamics of participation and health care consumption in the Affordable Care Act's health insurance marketplaces. In contrast to other health insurance settings, within-year dropout is common: roughly 30% of enrollees exit coverage within nine months of sign-up. These dropouts spend more on health care while covered than in the months before sign-up or after exit. We model how dropout shapes equilibrium premiums and consumer welfare. Although dropout generates a form of adverse selection, its theoretical welfare effect is ambiguous and depends on the relative monthly spending of part-year versus full-year enrollees. We then estimate a structural model to quantify how premiums and welfare respond to penalties for early dropout. Overall welfare improves under such penalties: high-income consumers---who we estimate can re-time their health spending more easily---remain enrolled longer, which lowers average costs in the insured population and reduces equilibrium premiums. The most generous plans see the largest premium reductions and the largest market-share gains. For the California marketplace, our analysis implies a net welfare gain of $319 million per year, reflecting both higher enrollee utility and lower public spending on premium subsidies and charity care for the uninsured.