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Selective contracting and foreclosure in health care markets

Author

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  • Bijlsma, Michiel
  • Boone, Jan
  • Zwart, Gijsbert

Abstract

We analyze exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all insurers.

Suggested Citation

  • Bijlsma, Michiel & Boone, Jan & Zwart, Gijsbert, 2009. "Selective contracting and foreclosure in health care markets," CEPR Discussion Papers 7576, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7576
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Frits Bos, 2007. "The Dutch fiscal framework; history, current practice and the role of the CPB," CPB Document 150.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Boone, J. & Schottmuller, C., 2015. "Health Provider Networks, Quality and Costs," Discussion Paper 2015-005, Tilburg University, Center for Economic Research.
    4. Pierre Koning & Karen van der Wiel, 2010. "Ranking the schools: How quality information affects school choice in the Netherlands," CPB Discussion Paper 150.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, in: Mark V. Pauly & Thomas G. Mcguire & Pedro P. Barros (ed.),Handbook of Health Economics, volume 2, chapter 0, pages 499-637, Elsevier.
    6. Boone, J. & Schottmuller, C., 2015. "Health Provider Networks, Quality and Costs," Other publications TiSEM 2327d90d-af3a-49ae-8b0b-7, Tilburg University, School of Economics and Management.
    7. Boone, J. & Schottmuller, C., 2015. "Health Provider Networks, Quality and Costs," Other publications TiSEM 5876be16-fe6d-49b8-9b33-4, Tilburg University, School of Economics and Management.

    More about this item

    Keywords

    anti-competitive effects; exclusion; foreclosure; health insurance; selective contracting; uninsured;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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