How complex are the contracts offered by health plans? (original) (raw)

Exclusionary Equilibria in Health-Care Markets

Journal of Economics <html_ent glyph="@amp;" ascii="&"/> Management Strategy, 1997

We have demonstrated that when providers of health insurance are perceived to be differentiated by consumers, circumstances may arise under which they find it advantageous to restrict the set of health-care providers that they approve to their customers. Even if all health-care providers are equally qualified and efficient, payers may choose to contract with a selected subset of them in order to secure more favorable contract terms. Moreover, in a concentrated health-care market that consists of two health insurance companies (payers) and two health-care providers (hospitals), both payers may choose to contract with only one of the hospitals while excluding the other completely from the market. When consumers' valuation of an extended choice of providers is small in comparison with the extent of differentiation that exists between the payers, such an exclusionary outcome is the unique equilibrium of the game.

Competition among Health Plans: A Two-Sided Market Approach

2009

We set-up a two-sided market framework to model competition between a Prefered Provider Organization (PPO) and a Health Maintenance Organization (HMO). Both health plans compete to attract policyholders on one side and providers on the other side. The PPO, which is characterized by a higher diversity of providers, attracts riskier policyholders. Our two-sided framework allows to examine the consequences of this risk segmentation on the providers' side, especially in terms of remuneration. The outcome of competition mainly depends on two effects: a demand effect, influenced by the value put by policyholders on providers access and an adverse selection effect, captured by the characteristics of the health risk distribution. If the adverse selection effect is too strong, the HMO gets a higher profit in equilibrium. On the contrary, if the demand effect dominates, the PPO profit is higher in spite of the unfavorable risk segmentation. We believe that our model, by highlighting the two-sided market structure of the health plans' competition, provides new insights to understand the increase in the PPOs' market share observed during the last decade in the US.

Public Health Insurance with Monopolistically Competitive Providers and Optional Spot Sales

The B.E. Journal of Economic Analysis & Policy

We study the implications of extending public-insurance coverage over differentiated medical products of the same therapeutic group to market outcomes. The public insurer can set the reimbursement level for medical providers and the copayment for the insured for medical care provided under the policy coverage, but cannot directly control providers’ spot sales (outside of insurance) price. In this setup, the price offered by the public insurer to medical providers must maintain their reservation profit from selling on the spot market directly to consumers. We show that the public insurer can manipulate this reservation profit by setting the copayment rate, and thereby promote market welfare while increasing consumers’ surplus due to lower medical prices and lower market entry. The results survive generalizations including moral hazard and incomplete insurance coverage.

Health Insurance and Competition in Markets for Differentiated Medical Products

2015

I study duopolistic market for differentiated medical products. Medical providers decide whether to sell on the spot market to sick consumers or to sell through competitive insurance market to healthy consumers. While shopping for insurance consumers know only the distribution of possible medical needs they may have if they get sick. Only when getting sick their actual medical need reveals and diagnosed. Hence consumers on the insurance market have lower taste differentiation than the sick consumers who are shopping on the spot market. I find that in equilibrium providers sell only on the insurance market, even though this intensifies competition because of lower taste differentiation. Competition between providers under insurance sales brings premiums low enough to motivate consumers buying insurance for both products. Insurance sales generate effi cient horizontal product differentiation, lower prices, and effi ciently higher quality. JEL Classification: : I11, I13, L1 Key-words: ...

Adverse selection and moral hazard in health insurance

In this paper, we want to characterize the optimal health insurance contract with adverse selection and moral hazard. We assume that policyholders di¤er by the permanent health status loss and choose an unobservable preventive e¤ort in order to reduce the probability of illness which is ex-ante identical. The di¤erence in illness'after-e¤ect modi…es policyholders' preventive actions. By the way, they di¤er in probabilities of illness leading to a situation close to Rothschild and Stiglitz 'model. In this case, we show that the optimal contract exhibits a deductible for the high health risk type since a higher after e¤ect implies a higher preventive e¤ort and then a lower probability of illness rather than for the low health risk type.

Collusion in a One-Period Insurance Market with Adverse Selection

SSRN Electronic Journal, 2000

We show how collusive outcomes may occur in equilibrium in a one-period competitive insurance market characterized by adverse selection. We build on the Inderst and Wambach (2001) model-this shows that the Rothschild and Stiglitz separating equilibrium always exists when there are capacity constraints-and we assume that insurees must pay a minimum premium, which is a common feature in many health systems. In this setup we show that there is a range of equilibria, from the zero pro…t one in which low-risks implicitly subsidize high risks, to one where …rms obtain pro…ts with both types of consumers. Moreover, we show that rents only partially dissipate if we assume free entry. Along these equilibria, high risks always obtain full insurance while the low risks coverage decreases as the …rms'pro…ts increase. Recently the Chilean antitrust authority (Fiscalía Nacional Económica) accused …ve of the largest private health insurers of collusion after they had reduced the coverage o¤ered to their customers and as a result signi…cantly raised their pro…ts. Our model is consistent with this accusation.

Health Care Network Formation and Policyholders' Welfare

SSRN Electronic Journal, 2000

We develop a model in which two insurers and two health care providers compete for a fixed mass of policyholders. Insurers compete in premium and offer coverage against financial consequences of health risk. They have the possibility to sign agreements with providers to establish a health care network. Providers, partially altruistic, are horizontally differentiated with respect to their physical address. They choose the health care quality and compete in price. First, we show that policyholders are better off under a competition between conventional insurance rather than under a competition between integrated insurers (Managed Care Organizations). Second, we reveal that the competition between a conventional insurer and a Managed Care Organization (MCO) leads to a similar equilibrium than the competition between two MCOs characterized by a different objective i.e. private versus mutual. Third, we point out that the ex ante providers' horizontal differentiation leads to an exclusionary equilibrium in which both insurers select one distinct provider. This result is in sharp contrast with frameworks that introduce the concept of option value to model the (ex post) horizontal differentiation between providers.