Working Paper: NBER ID: w23742
Authors: Kate Ho; Robin S. Lee
Abstract: We evaluate the consequences of narrow hospital networks in commercial health care markets. We develop a bargaining solution, Nash-in-Nash with Threat of Replacement, that captures insurers' incentives to exclude, and combine it with California data and estimates from Ho and Lee (2017) to simulate equilibrium outcomes under social, consumer, and insurer-optimal networks. Private incentives to exclude generally exceed social incentives, as the insurer benefits from substantially lower negotiated hospital rates. Regulation prohibiting exclusion increases prices and premiums and lowers consumer welfare without significantly affecting social surplus. However, regulation may prevent harm to consumers living close to excluded hospitals.
Keywords: Health Care Markets; Narrow Networks; Insurer Bargaining; Hospital Exclusion; Network Regulation
JEL Codes: I11; L10; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| private incentives to exclude hospitals from insurance networks (I11) | lower negotiated hospital rates (I18) |
| lower negotiated hospital rates (I18) | lower premiums for consumers (G52) |
| regulation prohibiting exclusion (K20) | increased prices and premiums (E30) |
| increased prices and premiums (E30) | lower consumer welfare (D69) |
| regulation prohibiting exclusion (K20) | prevent harm to consumers located near excluded hospitals (I11) |