Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange
American Economic Review · 2022 · Volume 112 · Issue 2
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.
Keywords
Asymmetric and Private Information, Mechanism Design, Insurance, Insurance Companies, Actuarial Studies, State and Local Government: Health, Education, Welfare, Public Pensions, Analysis of Health Care Markets, Health Insurance, Public and Private, Health: Government Policy, Regulation, Public Health
Enable JavaScript for citation tools and additional paper interactions.