Health Insurance and Hospital Technology Adoption

Purpose – This chapter discusses the relationship between health insurance and hospitals’ decisions to adopt medical technologies. I focus on both how the extent of insurance coverage can increase incentives to adopt new treatments, and how the parameters of the insurance contract can impact the types of treatments adopted. Methodology/approach – I provide a review of the previous theoretical and empirical literature and highlight evidence on this relationship from previous expansions of Medicaid eligibility to low-income pregnant women. Findings – While health insurance has important effects on individual-level choices of health care consumption, increases in the fraction of the population covered by insurance has also been found to have broader supply side effects as hospitals respond to changes in demand by changing the type of care offered. Furthermore, hospitals respond to the design of insurance contracts and adopt more or less cost-effective technologies depending on the incentive system. Research limitations/implications – Understanding how insurance changes supply side incentives is important as we consider future changes in the insurance landscape. Originality/value of paper – With these previous findings in mind, I conclude with a discussion of how the Affordable Care Act may alter hospital technology adoption incentives by both expanding coverage and changing payment schemes.