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HMO coverage of cosmetic procedures: Response to market competition

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  • Kevin Frick
  • Neil Powe

Abstract

Theory suggests that insurance policies should not cover purely cosmetic procedures. This paper attempts to explain empirical variation in coverage of a purely cosmetic procedure. Health maintenance organizations (HMOs) are modeled in a Cournot competition with two decisions—the number of policies and the limits placed on medical care utilization. Comparative statics for an individual market suggest, first, that restrictiveness is positively associated with the number of HMOs. Second, restrictiveness is positively associated with the predisposition to demand managed care products. Third, each effect is strengthened by increasing the other parameter. Restriction of tattoo ablation, a purely cosmetic procedure, is examined empirically. The first and second predictions are supported at low levels of predisposition and numbers of HMOs, while the third prediction is not supported. Copyright International Atlantic Economic Society 1998

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  • Kevin Frick & Neil Powe, 1998. "HMO coverage of cosmetic procedures: Response to market competition," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 4(4), pages 398-410, November.
    • Handle: RePEc:kap:iaecre:v:4:y:1998:i:4:p:398-410:10.1007/bf02295693
    DOI: 10.1007/BF02295693
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    References listed on IDEAS

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    1. Wholey, Douglas & Feldman, Roger & Christianson, Jon B., 1995. "The effect of market structure on HMO premiums," Journal of Health Economics, Elsevier, vol. 14(1), pages 81-105, May.
    2. Laurence C. Baker & Martin L. Brown, 1997. "The Effect of Managed Care on Health Care Providers," NBER Working Papers 5987, National Bureau of Economic Research, Inc.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
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    Cited by:

    1. Kevin Frick & Neil Powe, 2000. "Nonprice rivalry among health insurers and coverage of new technologies," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(4), pages 450-462, December.

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