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Selective contracting and foreclosure in health care markets

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

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7576.

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Date of creation: Nov 2009
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Handle: RePEc:cpr:ceprdp:7576
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  1. Scott, Anthony, 2000. "Economics of general practice," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 22, pages 1175-1200 Elsevier.
  2. Nathalie Fombaron & Carine Milcent, 2007. "The distortionary effect of health insurance on health demand," PSE Working Papers halshs-00587713, HAL.
  3. Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. " Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-63, Winter.
  4. Vita, Michael G., 2001. "Regulatory restrictions on selective contracting: an empirical analysis of "any-willing-provider" regulations," Journal of Health Economics, Elsevier, vol. 20(6), pages 955-966, November.
  5. David Spector, 2011. "Exclusive contracts and demand foreclosure," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 619-638, December.
  6. Town, Robert & Vistnes, Gregory, 2001. "Hospital competition in HMO networks," Journal of Health Economics, Elsevier, vol. 20(5), pages 733-753, September.
  7. Martin Gaynor & Ching-to Albert Ma, . "Insurance, Vertical Restraints, and Competition," GSIA Working Papers 53, Carnegie Mellon University, Tepper School of Business.
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