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Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange

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  • Mark Shepard

Abstract

Health insurers increasingly compete on their covered networks of medical providers. Using data from Massachusetts’ pioneer insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive “star” hospitals. I highlight a theoretically distinct selection channel: these plans attract consumers loyal to the star hospitals and who tend to use their high-price care when sick. Using a structural model, I show that selection creates a strong incentive to exclude star hospitals but that standard policy solutions do not improve net welfare. A key reason is the connection between selection and moral hazard in star hospital use.

Suggested Citation

  • Mark Shepard, 2016. "Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange," NBER Working Papers 22600, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22600
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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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