Working Paper: CEPR ID: DP12853
Authors: Jan Boone
Abstract: This paper introduces a workhorse model to analyze the effects of provider and insurer competition in health care markets. The two contracting imperfections we focus on are the following: (i) whether or not a patient should be treated and (ii) treatment quality are both not contractible. We derive conditions under which the market can implement first best quality and volume with the optimal competition intensities. First best competition intensity is strictly positive in both markets. If there is under-investment in quality, provider competition should be increased. Increasing insurer competition tends to increase treatment volume. If the planner cannot make the provider market competitive enough, it is optimal to increase insurer competition beyond its first best level thereby creating over-treatment.
Keywords: competition in health care markets; insurer competition; provider competition; treatment volume; treatment quality
JEL Codes: I13; I11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing provider competition (L13) | Increase in treatment quality (C22) |
| Increasing insurer competition (G52) | Increase in treatment volume (C32) |
| Insufficient provider competition (L13) | Underinvestment in quality (L15) |
| Low provider competition (D49) | Insurers may not have sufficient incentives to raise treatment quality (L15) |
| Exceeding optimal insurer competition (L13) | Inefficiencies (overtreatment) (D61) |