Vertical Integration and Plan Design in Healthcare Markets 

92 Pages Posted: 14 Jan 2019 Last revised: 5 Aug 2024

See all articles by José Ignacio Cuesta

José Ignacio Cuesta

Stanford University, Department of Economics

Carlos Noton

Pontificia Universidad Catolica de Chile

Benjamin Vatter

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: August 05, 2024

Abstract

We measure the impacts of vertical integration between insurers and hospitals. In the Chilean market, where half of private hospital capacity is vertically integrated, integration increases inpatient care spending by 6 percent and decreases consumer surplus and total welfare. Integrated insurers offer generous coverage at integrated hospitals, limited access to rival hospitals, and lower premiums. Competition for enrollees forces non-integrated insurers to provide additional coverage to high-quality non-integrated hospitals, resulting in plan networks that limit hospital competition. Whereas vertical integration reduces double marginalization, skewed cost-sharing structures-and their effect on hospital competition-more than compensate, leading to an overall negative welfare impact.

Keywords: insurers, hospitals, vertical integration, bargaining, competition

JEL Classification: I11, L13, L40

Suggested Citation

Cuesta, José Ignacio and Noton, Carlos and Vatter, Benjamin, Vertical Integration and Plan Design in Healthcare Markets  (August 05, 2024). Available at SSRN: https://ssrn.com/abstract=3309218 or http://dx.doi.org/10.2139/ssrn.3309218

José Ignacio Cuesta

Stanford University, Department of Economics ( email )

579 Jane Stanford Way
Stanford, CA CA 94305
United States
94305-6015 (Fax)

Carlos Noton (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Avda. Vicuña Mackenna 4860
Macul, 780436
Chile

Benjamin Vatter

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main St
office E62-525
Cambridge, MA 02142
United States

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