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The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market

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Katherine Ho
Abstract

Managed care health insurers in the US 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11819.

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Date of creation: Dec 2005
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Handle: RePEc:nbr:nberwo:11819

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I0 - Health, Education, and Welfare - - General
I1 - Health, Education, and Welfare - - Health

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