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Insurer Competition in Health Care Markets

  • Kate Ho
  • Robin S. Lee

The impact of insurer competition on welfare, negotiated provider prices, and premiums in the U.S. private health care industry is theoretically ambiguous. Reduced competition may increase both the premiums charged by insurers and their payments made to hospitals. However, it may also strengthen insurers' bargaining leverage when negotiating with hospitals, thereby offsetting such increases. To understand and measure this trade-off, we estimate a model of employer-insurer and hospital-insurer bargaining over premiums and reimbursements, household demand for insurance, and individual demand for hospitals using detailed California admissions, claims, and enrollment data from a large benefits manager. We simulate the removal of both large and small insurers from consumers' choice sets. Although consumer welfare decreases and premiums typically increase, we find that premiums can fall upon the removal of a small insurer if an employer imposes effective constraints through negotiations with the remaining insurers. We also document substantial heterogeneity in hospital price changes upon the removal of an insurer, with renegotiated price increases and decreases of as much as 10% across markets.

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File URL: http://www.nber.org/papers/w19401.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19401.

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Date of creation: Sep 2013
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Handle: RePEc:nbr:nberwo:19401
Note: HC IO
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  1. Katherine Ho, 2005. "The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market," NBER Working Papers 11819, National Bureau of Economic Research, Inc.
  2. Robin Lee & Michael Whinston & Ali Yurukoglu & Gregory Crawford, 2013. "The Welfare Effects of Vertical Integration in Multichannel Television Markets," 2013 Meeting Papers 81, Society for Economic Dynamics.
  3. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-85, April.
  4. Gal-Or, Esther, 1999. "The profitability of vertical mergers between hospitals and physician practices," Journal of Health Economics, Elsevier, vol. 18(5), pages 621-652, October.
  5. Maria Polyakova, 2016. "Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D," American Economic Journal: Applied Economics, American Economic Association, vol. 8(3), pages 165-95, July.
  6. Michaela Draganska & Daniel Klapper & Sofia B. Villas-Boas, 2010. "A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel," Marketing Science, INFORMS, vol. 29(1), pages 57-74, 01-02.
  7. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
  8. A. Pakes & J. Porter & Kate Ho & Joy Ishii, 2015. "Moment Inequalities and Their Application," Econometrica, Econometric Society, vol. 83, pages 315-334, 01.
  9. Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 375-410.
  10. Alan T. Sorensen, 2003. "Insurer-hospital bargaining: negotiated discounts in post-deregulation connecticut," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 469-490, December.
  11. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, vol. 103(1), pages 145-77, February.
  12. Joseph Farrell & David Balan & Keith Brand & Brett Wendling, 2011. "Economics at the FTC: Hospital Mergers, Authorized Generic Drugs, and Consumer Credit Markets," Review of Industrial Organization, Springer, vol. 39(4), pages 271-296, December.
  13. Moriya, Asako S. & Vogt, William B. & Gaynor, Martin, 2010. "Hospital prices and market structure in the hospital and insurance industries," Health Economics, Policy and Law, Cambridge University Press, vol. 5(04), pages 459-479, October.
  14. Leemore Dafny & Katherine Ho & Mauricio Varela, 2010. "Let them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and Toward an Individual Exchange," NBER Working Papers 15687, National Bureau of Economic Research, Inc.
  15. Robin S. Lee, 2013. "Vertical Integration and Exclusivity in Platform and Two-Sided Markets," American Economic Review, American Economic Association, vol. 103(7), pages 2960-3000, December.
  16. Matthew S. Lewis & Kevin E. Pflum, 2015. "Diagnosing Hospital System Bargaining Power in Managed Care Networks," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 243-74, February.
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