Employer Incentives and Distortions in Health Insurance Design: Implications for Welfare and Costs
American Economic Review · 2022 · Volume 112 · Issue 3
Abstract
This paper studies employer incentives in designing health insurance provider networks and whether observed offerings reflect preferences that are aligned with employees. I estimate a model of supply and demand where I endogenize employer health plan offerings with respect to hospital and physician networks. I find that employers "overprovide" broad networks by overweighting the preferences of certain employees, specifically older workers and those in regions with less provider competition, over the preferences of the average employee household. Shifting employers toward offering different provider networks in different geographic markets could yield substantial gains to surplus, with minimal distributional or selection effects.
Keywords
Insurance, Insurance Companies, Actuarial Studies, Financial Institutions and Services: Government Policy and Regulation, Health Insurance, Public and Private, Nonwage Labor Costs and Benefits, Retirement Plans, Private Pensions, Personnel Economics: Compensation and Compensation Methods and Their Effects
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