Working Paper: NBER ID: w22600
Authors: Mark Shepard
Abstract: Health insurers increasingly compete on their covered networks of medical providers. Using data from Massachusetts’ pioneer insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive “star” hospitals. I highlight a theoretically distinct selection channel: these plans attract consumers loyal to the star hospitals and who tend to use their high-price care when sick. Using a structural model, I show that selection creates a strong incentive to exclude star hospitals but that standard policy solutions do not improve net welfare. A key reason is the connection between selection and moral hazard in star hospital use.
Keywords: Adverse Selection; Health Insurance; Hospital Networks; Competition
JEL Codes: I11; I13; I18; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Adverse Selection (D82) | Plans covering star hospitals attract high-cost enrollees (I11) |
| Plans covering star hospitals attract high-cost enrollees (I11) | Increased costs for insurers (G52) |
| Adverse Selection (D82) | Inefficiency in Risk Adjustment (D61) |
| Adverse Selection (D82) | Insurers exclude star hospitals from networks (I13) |
| Insurers exclude star hospitals from networks (I13) | Increased costs associated with patients who prefer star hospitals (I11) |