INSURER COMPETITION IN HEALTH CARE MARKETS

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 the premiums charged by insurers and their payments made to hospitals. However, it may also strengthen insurers...

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Bibliographic Details
Published in:Econometrica 2017-03, Vol.85 (2), p.379-417
Main Authors: Ho, Kate, Lee, Robin S.
Format: Article
Language:English
Subjects:
bargaining
Competition
countervailing power
Economic models
Health insurance
hospital prices
Insurance companies
insurer competition
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Summary: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 the premiums charged by insurers and their payments made to hospitals. However, it may also strengthen insurers' bargaining leverage when negotiating with hospitals, thereby generating offsetting cost decreases. To understand and measure this trade-off, we estimate a model of employer-insurer and hospitalinsurer bargaining over premiums and reimbursements, household demand for insurance, and individual demand for hospitals using detailed California admissions, claims, and enrollment data. 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 premium constraints through negotiations with the remaining insurers. We also document substantial heterogeneity in hospital price adjustments upon the removal of an insurer, with renegotiated price increases and decreases of as much as 10% across markets.
ISSN:0012-9682
1468-0262
DOI:10.3982/ECTA13570