Working Paper: NBER ID: w11819
Authors: Katherine Ho
Abstract: Managed care health insurers in the US restrict their enrollees' choice of hospitals to within specific networks. This paper considers the implications of these restrictions. A three-step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer. The results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans. A welfare analysis, assuming fixed prices, implies that restricting consumers' choice of hospitals leads to a loss to society of approximately $1 billion per year across the 43 US markets considered. This figure may be outweighed by the price reductions generated by the restriction.
Keywords: No keywords provided
JEL Codes: I0; I1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| restricted hospital choice (I19) | negative impact on expected utility (D81) |
| restricted hospital choice (I19) | loss of consumer welfare (D18) |
| shift to unrestricted hospital choice (I19) | increase in consumer surplus (D11) |
| restricted hospital choice (I19) | median equivalent variation of 1570 dollars per privately insured consumer (G52) |
| consumer surplus effects (D11) | dominate producer surplus effects (D41) |
| unrestricted hospital choice (I19) | reduction of 19000 dollars per market per year (H23) |