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The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market

  • Katherine Ho
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Managed care health insurers in the US 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.

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File URL: http://www.nber.org/papers/w11819.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11819.

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Date of creation: Dec 2005
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Publication status: published as Ho, Katherine. “The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market.” Journal of Applied Econometrics 21, 7 (2006): 1039-1079.
Handle: RePEc:nbr:nberwo:11819
Note: HC
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  2. Martin Gaynor & William Vogt, 2002. "Competition Among Hospitals," GSIA Working Papers 2003-E20, Carnegie Mellon University, Tepper School of Business.
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  12. Anne Beeson Royalty & Neil Solomon, 1999. "Health Plan Choice: Price Elasticities in a Managed Competition Setting," Journal of Human Resources, University of Wisconsin Press, vol. 34(1), pages 1-41.
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  17. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
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  20. Joseph P. Newhouse, 2004. "Pricing the Priceless: A Health Care Conundrum," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640589, June.
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