Barriers to Entry of a Vertically Integrated Health Insurer: An Analysis of Welfare and Entry Costs

59 Pages Posted: 5 May 2009  

Katherine Ho

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

Abstract

I investigate the reasons why market expansion attempts by vertically integrated health insurers have largely failed. I use an econometric model of consumer demand for hospitals and insurers to simulate entry of an integrated plan into 28 new markets. The results indicate that entry would increase social surplus by over $34 billion per year. I then investigate several potential barriers to entry. Three are particularly important. Integrated plans cannot attract enough enrollees to support their provider networks unless they exceed competitor quality levels and convince consumers of this benefit. Regulatory restrictions on plans building new facilities may also be important.

Suggested Citation

Ho, Katherine, Barriers to Entry of a Vertically Integrated Health Insurer: An Analysis of Welfare and Entry Costs. Journal of Economics & Management Strategy, Vol. 18, Issue 2, pp. 487-545, Summer 2009. Available at SSRN: https://ssrn.com/abstract=1396930 or http://dx.doi.org/10.1111/j.1530-9134.2009.00221.x

Katherine Ho (Contact Author)

Columbia University - Department of Economics ( email )

420 West 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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