Insurer Competition in Health Care Markets

50 Pages Posted: 6 Sep 2013  

Katherine Ho

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

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 2013

Abstract

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 hospital-insurer 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.

Suggested Citation

Ho, Katherine and Lee, Robin S., Insurer Competition in Health Care Markets (September 2013). NBER Working Paper No. w19401. Available at SSRN: https://ssrn.com/abstract=2321453

Katherine Ho (Contact Author)

Columbia University - Department of Economics ( email )

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New York, NY 10027
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National Bureau of Economic Research (NBER)

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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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