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Exclusive contracts in health insurance

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  • Rahkovsky, Ilya

Abstract

Competition between insurance companies for employees of a firm often increases the prices and reduces the availability of high-quality health plans offered to employees. An insurance company can reduce competition by signing an exclusive contract, which guarantees that the company is the only insurance provider. The study assesses whether exclusive contracts can alleviate the negative consequences of competition. Using the nation-wide survey of employers, I find that exclusive insurers charged 39-42 less for a unit of insurance quality than non-exclusive insurers. Furthermore, I find that the pattern of insurance quality dispersion is consistent with the exclusive insurers offering more high quality plans.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27473.

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Date of creation: 15 Dec 2010
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Handle: RePEc:pra:mprapa:27473

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Keywords: health insurance; exclusive contract; subsidy; vertical restraint; signaling;

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References

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  1. Ilya Segal & Michael D. Whinston, 2000. "Exclusive Contracts and Protection of Investments," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 603-633, Winter.
  2. Barros, Pedro Pita, 2003. "Cream-skimming, incentives for efficiency and payment system," Journal of Health Economics, Elsevier, Elsevier, vol. 22(3), pages 419-443, May.
  3. Anne Beeson Royalty & Neil Solomon, 1999. "Health Plan Choice: Price Elasticities in a Managed Competition Setting," Journal of Human Resources, University of Wisconsin Press, vol. 34(1), pages 1-41.
  4. M. Kate Bundorf & Jonathan D. Levin & Neale Mahoney, 2008. "Pricing and Welfare in Health Plan Choice," NBER Working Papers 14153, National Bureau of Economic Research, Inc.
  5. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark E. Votruba, 2011. "Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance," American Economic Review, American Economic Association, American Economic Association, vol. 101(5), pages 1842-71, August.
  6. Liran Einav & Amy Finkelstein & Mark R. Cullen, 2008. "Estimating Welfare in Insurance Markets Using Variation in Prices," NBER Working Papers 14414, National Bureau of Economic Research, Inc.
  7. Cardon, James H & Hendel, Igal, 2001. "Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 408-27, Autumn.
  8. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, Elsevier, vol. 17(5), pages 537-555, October.
  9. Mark Cullen & Liran Einav & Amy Finkelstein, 2008. "Estimating Welfare in Insurance Markets Using Variation in Prices," Discussion Papers, Stanford Institute for Economic Policy Research 08-006, Stanford Institute for Economic Policy Research.
  10. Yu-Luen Ma & Mark Browne, 2005. "Subsidization and Choice in the Group Health Insurance Market," Journal of Risk & Insurance, The American Risk and Insurance Association, The American Risk and Insurance Association, vol. 72(3), pages 413-439.
  11. Jack, William, 2001. "Controlling selection incentives when health insurance contracts are endogenous," Journal of Public Economics, Elsevier, Elsevier, vol. 80(1), pages 25-48, April.
  12. Buchmueller, Thomas C. & Feldstein, Paul J., 1997. "The effect of price on switching among health plans," Journal of Health Economics, Elsevier, Elsevier, vol. 16(2), pages 231-247, April.
  13. Kate Bundorf, M., 2002. "Employee demand for health insurance and employer health plan choices," Journal of Health Economics, Elsevier, Elsevier, vol. 21(1), pages 65-88, January.
  14. M. Kate Bundorf, 2010. "The Effects of Offering Health Plan Choice Within Employment-Based Purchasing Groups," Journal of Risk & Insurance, The American Risk and Insurance Association, The American Risk and Insurance Association, vol. 77(1), pages 105-127.
  15. Strombom, Bruce A. & Buchmueller, Thomas C. & Feldstein, Paul J., 2002. "Switching costs, price sensitivity and health plan choice," Journal of Health Economics, Elsevier, Elsevier, vol. 21(1), pages 89-116, January.
  16. Thomas G. McGuire & Jacob Glazer, 2000. "Optimal Risk Adjustment in Markets with Adverse Selection: An Application to Managed Care," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 1055-1071, September.
  17. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, Elsevier, vol. 19(6), pages 829-854, November.
  18. David Cutler, 1994. "Market Failure in Small Group Health Insurance," NBER Working Papers 4879, National Bureau of Economic Research, Inc.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Monopoly in health insurance is better
    by Economic Logician in Economic Logic on 2011-02-08 15:16:00

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