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The welfare effects of restricted hospital choice in the US medical care market

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Author Info
Katherine Ho (Economics Department, Columbia University, New York, USA)
Abstract

Managed care health insurers in the USA restrict their enrollees' choice of hospitals to within specific networks. This paper considers the implications of these restrictions. A three-step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer. The results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans. A welfare analysis, assuming fixed prices, implies that restricting consumers' choice of hospitals leads to a loss to society of approximately $1 billion per year across the 43 US markets considered. This figure may be outweighed by the price reductions generated by the restriction. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.896
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File URL: http://qed.econ.queensu.ca:80/jae/2006-v21.7/
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 21 (2006)
Issue (Month): 7 ()
Pages: 1039-1079
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Handle: RePEc:jae:japmet:v:21:y:2006:i:7:p:1039-1079

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. " Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-63, Winter.
  2. David M. Cutler & Sarah Reber, 1996. "Paying for Health Insurance: The Tradeoff between Competition and Adverse Selection," NBER Working Papers 5796, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Martin Gaynor & William B Vogt, 2003. "Competition among Hospitals," The Centre for Market and Public Organisation 03/087, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  4. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-42, March.
  5. Katherine Ho, 2005. "Insurer-Provider Networks in the Medical Care Market," NBER Working Papers 11822, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Beaulieu, Nancy Dean, 2002. "Quality information and consumer health plan choices," Journal of Health Economics, Elsevier, vol. 21(1), pages 43-63, January. [Downloadable!] (restricted)
  7. Buchmueller, Thomas C. & Feldstein, Paul J., 1997. "The effect of price on switching among health plans," Journal of Health Economics, Elsevier, vol. 16(2), pages 231-247, April. [Downloadable!] (restricted)
  8. Tay, Abigail, 2003. " Assessing Competition in Hospital Care Markets: The Importance of Accounting for Quality Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 786-814, Winter.
  9. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrew Sweeting, 2007. "Dynamic Product Repositioning in Differentiated Product Markets: The Case of Format Switching in the Commercial Radio Industry," NBER Working Papers 13522, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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