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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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    File URL: http://www.nber.org/papers/w22600.pdf
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    Cited by:

    1. repec:eee:pubeco:v:155:y:2017:i:c:p:21-37 is not listed on IDEAS
    2. Ericson, Keith M. Marzilli & Starc, Amanda, 2016. "How product standardization affects choice: Evidence from the Massachusetts Health Insurance Exchange," Journal of Health Economics, Elsevier, vol. 50(C), pages 71-85.
    3. Savannah L. Bergquist & Timothy J. Layton & Thomas G. McGuire & Sherri Rose, 2018. "Intervening on the Data to Improve the Performance of Health Plan Payment Methods," NBER Working Papers 24491, National Bureau of Economic Research, Inc.
    4. repec:aea:jecper:v:31:y:2017:i:4:p:3-22 is not listed on IDEAS
    5. Francesco Decarolis & Andrea Guglielmo & Calvin Luscombe, 2017. "Open Enrollment Periods and Plan Choices," NBER Working Papers 24156, National Bureau of Economic Research, Inc.
    6. David Dranove & Christopher Ody & Amanda Starc, 2017. "A Dose of Managed Care: Controlling Drug Spending in Medicaid," NBER Working Papers 23956, National Bureau of Economic Research, Inc.
    7. Sonia Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Health Insurance Markups," Working Papers 2017-084, Human Capital and Economic Opportunity Working Group.
    8. Sonia P. Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Imperfect Competition in Health Insurance," NBER Working Papers 23104, National Bureau of Economic Research, Inc.
    9. Michael Geruso & Timothy J. Layton, 2017. "Selection in Health Insurance Markets and Its Policy Remedies," Journal of Economic Perspectives, American Economic Association, vol. 31(4), pages 23-50, Fall.
    10. Timothy Layton & Ellen J. Montz & Mark Shepard, 2017. "Health Plan Payment in U.S. Marketplaces: Regulated Competition with a Weak Mandate," NBER Working Papers 23444, National Bureau of Economic Research, Inc.
    11. Michael Geruso & Timothy J. Layton & Daniel Prinz, 2016. "Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges," NBER Working Papers 22832, National Bureau of Economic Research, Inc.

    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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