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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 USA 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. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Katherine Ho, 2006. "The welfare effects of restricted hospital choice in the US medical care market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1039-1079, November.
    • Handle: RePEc:wly:japmet:v:21:y:2006:i:7:p:1039-1079
    DOI: 10.1002/jae.896
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    JEL classification:

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

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