Does Health Plan Generosity Enhance Hospital Market Power?

31 Pages Posted: 31 Aug 2015

See all articles by Laurence C. Baker

Laurence C. Baker

Stanford University; National Bureau of Economic Research (NBER)

M. Kate Bundorf

Stanford University - Department of Health Research and Policy; National Bureau of Economic Research (NBER)

Daniel P. Kessler

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: August 2015

Abstract

We test whether the generosity of employer-sponsored health insurance facilitates the exercise of market power by hospitals. We construct indices of health plan generosity and the price and volume of hospital services using data from Truven MarketScan for 601 counties from 2001-2007. We use variation in the industry and union status of covered workers within a county over time to identify the causal effects of generosity. Although OLS estimates fail to reject the hypothesis that generosity facilitates the exercise of hospital market power, IV estimates show a statistically significant and economically important positive effect of plan generosity on hospital prices in uncompetitive markets, but not in competitive markets. Our results suggest that most of the aggregate effect of hospital market structure on prices found in previous work may be coming from areas with generous plans.

Suggested Citation

Baker, Laurence C. and Bundorf, M. Kate and Kessler, Daniel Philip, Does Health Plan Generosity Enhance Hospital Market Power? (August 2015). NBER Working Paper No. w21513. Available at SSRN: https://ssrn.com/abstract=2653524

Laurence C. Baker (Contact Author)

Stanford University ( email )

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National Bureau of Economic Research (NBER)

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M. Kate Bundorf

Stanford University - Department of Health Research and Policy ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Daniel Philip Kessler

Stanford Graduate School of Business ( email )

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Stanford, CA 94305-5015
United States
650-723-4492 (Phone)
650-725-6152 (Fax)

National Bureau of Economic Research (NBER)

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United States

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