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Competition among health plans: a two-sided market approach

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  • David Bardey
  • Jean-Charles Rochet

Abstract

Classical analysis of health insurance markets often focuses on adverse selection, which creates a direct externality between the enrollees of the same health plan: under an imperfect risk adjustment, the higher the risks of my co-enrollees, the higher my cost of insurance. This has lead to the view that restricting the diversity of accessible physicians may be good for policyholders, in a context where competition between health plans can lead to a "death spiral" for the less restrictive plan. This paper defends the opposite view that diversity might pay, because of the indirect externality between policyholders and physicians. By attracting higher risks, the less restrictive plan may also guarantee a higher level of activity to its physicians, and therefore negotiate with them a lower fee-for-service rate. By explicitly modeling the two sides of the market for health (policyholders and physicians), we are able to find examples in which competition between health plans gives a higher profit to the less restrictive plan.

Suggested Citation

  • David Bardey & Jean-Charles Rochet, 2009. "Competition among health plans: a two-sided market approach," Documentos de Trabajo 005217, Universidad del Rosario.
  • Handle: RePEc:col:000092:005217
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    3. Mark J. Tremblay, 2016. "Vertical Relationships within Platform Marketplaces," Games, MDPI, vol. 7(3), pages 1-11, July.
    4. Boone, Jan, 2019. "Health provider networks with private contracts: Is there under-treatment in narrow networks?," Journal of Health Economics, Elsevier, vol. 67(C).
    5. Guillaume Roger, 2017. "Two-sided competition with vertical differentiation," Journal of Economics, Springer, vol. 120(3), pages 193-217, April.
    6. Boone, J. & Schottmuller, C., 2015. "Health Provider Networks, Quality and Costs," Discussion Paper 2015-005, Tilburg University, Center for Economic Research.
    7. Jullien, Bruno, 2010. "Two-Sided B2B Platforms," IDEI Working Papers 652, Institut d'Économie Industrielle (IDEI), Toulouse, revised Mar 2011.
    8. David Bardey & Giancarlo Buitrago, 2015. "Integración vertical en el sector de la salud colombiano," Documentos CEDE 014069, Universidad de los Andes – Facultad de Economía – CEDE.
    9. David Bardey & Helmuth Cremer & Jean-Marie Lozachmeur, 2014. "Competition in Two-Sided Markets with Common Network Externalities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(4), pages 327-345, June.
    10. Rachel Kreier & Bhaswati Sengupta, 2015. "Income, Health, and the Value of Preserving Options," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(4), pages 431-448, December.
    11. Michiel Bijlsma & Jan Boone & Gijsbert Zwart, 2014. "Competition leverage: how the demand side affects optimal risk adjustment," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 792-815, December.
    12. Philippe Choné & Ching-To Albert Ma, 2011. "Optimal Health Care Contract under Physician Agency," Annals of Economics and Statistics, GENES, issue 101-102, pages 229-256.
    13. Edmond Baranes & David Bardey, 2015. "Competition between health maintenance organizations and nonintegrated health insurance companies in health insurance markets," Health Economics Review, Springer, vol. 5(1), pages 1-9, December.
    14. Wang, Xiaolei & He, Fang & Yang, Hai & Oliver Gao, H., 2016. "Pricing strategies for a taxi-hailing platform," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 93(C), pages 212-231.
    15. David Bardey & Marcela Meléndez, 2012. "La economía de los mercados de dos lados: aplicación al análisis de las tarjetas de pago en Colombia," Documentos CEDE 010021, Universidad de los Andes – Facultad de Economía – CEDE.
    16. Jan Boone & Christoph Schottmüller, 2015. "Health provider networks, quality and costs," Discussion Papers 15-02, University of Copenhagen. Department of Economics.
    17. 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.
    18. Chang, Chih-Wei & Lin, Yan-Shu & Ohta, Hiroshi, 2013. "Optimal location in two-sided markets," Economic Modelling, Elsevier, vol. 35(C), pages 743-750.
    19. Cristina Pardo-Garcia & Jose J. Sempere-Monerris, 2018. "Mixed provision of health care services with double coverage," Journal of Economics, Springer, vol. 123(1), pages 49-70, January.
    20. Howell, Bronwyn, 2006. "Unveiling 'Invisible Hands': Two-Sided Platforms in Health Care Markets," Working Paper Series 3841, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    21. Bardey David & Cremer Helmuth & Lozachmeur Jean-Marie, 2012. "Doctors' Remuneration Schemes and Hospital Competition in a Two-Sided Market," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-31, November.
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    More about this item

    Keywords

    Two-sided Markets; Managed Care Competition; Net-work Efects; Adverse Selection.;
    All these keywords.

    JEL classification:

    • 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
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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