Health Care Network Formation and Policyholders' Welfare
AbstractWe develop a model in which two insurers and two health care providers compete for a fixed mass of policyholders. Insurers compete in premium and offer coverage against financial consequences of health risk. They have the possibility to sign agreements with providers to establish a health care network. Providers, partially altruistic, are horizontally differentiated with respect to their physical address. They choose the health care quality and compete in price. First, we show that policyholders are better off under a competition between conventional insurance rather than under a competition between integrated insurers (Managed Care Organizations). Second, we reveal that the competition between a conventional insurer and a Managed Care Organization (MCO) leads to a similar equilibrium than the competition between two MCOs characterized by a different objective i.e. private versus mutual. Third, we point out that the ex ante providers' horizontal differentiation leads to an exclusionary equilibrium in which both insurers select one distinct provider. This result is in sharp contrast with frameworks that introduce the concept of option value to model the (ex post) horizontal differentiation between providers.
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Bibliographic InfoPaper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 10-183.
Date of creation: 11 Aug 2010
Date of revision:
Health care network; horizontal differentiation; health care quality;
Other versions of this item:
- Bardey David & Bourgeon Jean-Marc, 2011. "Health Care Network Formation and Policyholders' Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-20, January.
- David Bardey & Jean-Marc Bourgeon, 2010. "Healt care network formation and policyholders'welfare," DOCUMENTOS DE TRABAJO 007457, UNIVERSIDAD DEL ROSARIO.
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-COM-2010-10-02 (Industrial Competition)
- NEP-HEA-2010-10-02 (Health Economics)
- NEP-IAS-2010-10-02 (Insurance Economics)
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.:
- Bourgeon, Jean-Marc & Picard, Pierre & Pouyet, Jerome, 2008. "Providers' affiliation, insurance and collusion," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 170-186, January.
- Ching-to Albert Ma & Michael Riordan, 1997.
"Health Insurance, Moral Hazard, and Managed Care,"
0080, Boston University - Industry Studies Programme.
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