Insurer Competition in Health Care Markets

55 Pages Posted: 8 Sep 2015

See all articles by Kate Ho

Kate Ho

National Bureau of Economic Research (NBER); Princeton University - Department of Economics

Robin S. Lee

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2015

Abstract

We analyze the impact of insurer competition on health care markets using a model of premium setting, hospital-insurer bargaining, household demand for insurance, and individual demand for hospitals. Increased insurer competition may lead to lower premiums; it may also increase health providers' leverage to negotiate higher prices, thereby mitigating premium reductions. We use detailed California admissions, claims, and enrollment data from a large benefits manager. We estimate our model and simulate the removal of an insurer from consumers' choice sets. Although premiums rise and annual consumer surplus falls by $50-120 per capita, hospital prices and spending fall in certain markets as remaining insurers negotiate lower rates. Overall, the impact on negotiated prices is heterogeneous, with increases or decreases of up to 15% across markets. We conclude that insurer competition can increase consumer surplus but also generate a redistribution of rents across hospitals and greater medical spending in certain markets.

Keywords: bargaining, health care markets, vertical contracts

JEL Classification: I11, L10

Suggested Citation

Ho, Kate and Ho, Kate and Lee, Robin S., Insurer Competition in Health Care Markets (September 2015). CEPR Discussion Paper No. DP10812, Available at SSRN: https://ssrn.com/abstract=2657168

Kate Ho (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Robin S. Lee

Harvard University - Department of Economics ( email )

1805 Cambridge St.
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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