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Competition among health plans: a two-sided market approach

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  • David Bardey

    ()

  • Jean-Charles Rochet

    ()

Abstract

Classical analysis of health insurance markets often focuses on adverse selection, which creates a direct externality between the enrollees of the same health plan: under an imperfect risk adjustment, the higher the risks of my co-enrollees, the higher my cost of insurance. This has lead to the view that restricting the diversity of accessible physicians may be good for policyholders, in a context where competition between health plans can lead to a "death spiral" for the less restrictive plan. This paper defends the opposite view that diversity might pay, because of the indirect externality between policyholders and physicians. By attracting higher risks, the less restrictive plan may also guarantee a higher level of activity to its physicians, and therefore negotiate with them a lower fee-for-service rate. By explicitly modeling the two sides of the market for health (policyholders and physicians), we are able to find examples in which competition between health plans gives a higher profit to the less restrictive plan.

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Bibliographic Info

Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 005217.

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Length: 19
Date of creation: 08 Jan 2009
Date of revision:
Handle: RePEc:col:000092:005217

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Keywords: Two-sided Markets; Managed Care Competition; Net-work Efects; Adverse Selection.;

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Citations

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Cited by:
  1. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," NBER Chapters, in: Tax Policy and the Economy, Volume 26, pages 125-163 National Bureau of Economic Research, Inc.
  2. David Bardey & Helmuth Cremer & Jean-Marie Lozachmeur, 2014. "Competition in Two-Sided Markets with Common Network Externalities," Review of Industrial Organization, Springer, Springer, vol. 44(4), pages 327-345, June.
  3. Chang, Chih-Wei & Lin, Yan-Shu & Ohta, Hiroshi, 2013. "Optimal location in two-sided markets," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 743-750.
  4. Jullien, Bruno, 2010. "Two-Sided B2B Platforms," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 652, Institut d'Économie Industrielle (IDEI), Toulouse, revised Mar 2011.
  5. Ching-to Albert MA & Philippe CHONÉ, 2010. "Optimal Health Care Contract under Physician Agency," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2010-022, Boston University - Department of Economics.
  6. David Bardey & Marcela Meléndez, 2012. "La economía de los mercados de dos lados: aplicación al análisis de las tarjetas de pago en Colombia," DOCUMENTOS CEDE, UNIVERSIDAD DE LOS ANDES-CEDE 010021, UNIVERSIDAD DE LOS ANDES-CEDE.
  7. Audrey Boilley, 2013. "Duopoly Competition and Regulation in a Two-Sided Health Care Insurance Market with Product Differentiation," Working Papers, CRESE 2013-02, CRESE.

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