Do Health Insurers Contract the Best Providers? Provider Networks, Quality, and Costs

39 Pages Posted: 22 May 2020

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Christoph Schottmüller

University of Cologne; Tilburg Law and Economics Center (TILEC)

Date Written: August 2019

Abstract

We provide a modeling framework to analyze selective contracting in the health‐care sector. Two health‐care providers differ in quality and costs. When buying health insurance, consumers observe neither provider quality nor costs. We derive an equilibrium where health insurers signal provider quality through their choice of provider network. Selective contracting focuses on low‐cost providers. Contracting both providers signals high quality. Market power reduces the scope for signaling, thereby leading to lower quality and inefficiency.

Suggested Citation

Boone, Jan and Schottmüller, Christoph, Do Health Insurers Contract the Best Providers? Provider Networks, Quality, and Costs (August 2019). International Economic Review, Vol. 60, Issue 3, pp. 1209-1247, 2019, Available at SSRN: https://ssrn.com/abstract=3602077 or http://dx.doi.org/10.1111/iere.12383

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Christoph Schottmüller

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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