American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange
American Economic Review
vol. 112,
no. 2, February 2022
(pp. 578–615)
Abstract
Health insurers increasingly compete on their networks of medical providers. Using data from Massachusetts's insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive "star" hospitals. I highlight a theoretically distinct selection channel: consumers loyal to star hospitals incur high spending, conditional on their medical state, because they use these hospitals' expensive care. This implies heterogeneity in consumers' incremental costs of gaining access to star hospitals, posing a challenge for standard selection policies. Along with selection on unobserved sickness, I find this creates strong incentives to exclude star hospitals, even with risk adjustment in place.Citation
Shepard, Mark. 2022. "Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange." American Economic Review, 112 (2): 578–615. DOI: 10.1257/aer.20201453Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- G22 Insurance; Insurance Companies; Actuarial Studies
- H75 State and Local Government: Health; Education; Welfare; Public Pensions
- I11 Analysis of Health Care Markets
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health