Public Health Insurance with Monopolistically Competitive Providers and Optional Spot Sales (original) (raw)
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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: ...
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.
Public and Private Provision of Health Care
Journal of Economics & Management Strategy, 2002
One of the mechanisms that is implemented in the cost containment wave in the health care sectors in western countries is the definition, by the third-party payer, of a set of preferred providers. The insured patients have different access rules to such providers when ill. The rules specify the co-payments and the indemnity the patient obtains if patronizing an out-of-plan care provider. We propose to study the competitive process among providers in terms of both prices and qualities. Competition is influenced among other factors by the status of providers as in-plan or out-of-plan care providers. Also, we face a moral hazard of provider choice related to the trade-off between freedom to choose and the need to hold down costs. Our main findings are that we can define a reimbursement scheme when decisions on prices and qualities are taken simultaneously (that we relate to primary health care sectors) such that the first-best allocation is achieved. In contrast, some type of regulation is needed to achieve the optimal solution when decisions are sequential (specialized health care sector). We also derive some normative conclusions on the way price controls should be implemented in some European Union Member States.
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.
Price Discrimination in Public Healthcare
Australian Economic Papers, 2018
Could a public healthcare system use price discrimination-paying medical service providers different fees, depending on the service provider's quality-lead to improvements in social welfare? We show that differentiating medical fees by quality increases social welfare relative to uniform pricing (i.e. quality-invariant fee schedules) whenever hospitals and doctors have private information about their own ability. We also show that by moving from uniform to differentiated medical fees, the public healthcare system can effectively incentivise good doctors and hospitals (i.e. low-cost-types) to provide even higher levels of quality than they would under complete information. In the socially optimal quality-differentiated medical fee system, low-cost-type medical-service providers enjoy a rent due to their informational advantage. Informational rent is socially beneficial because it gives service providers a strong incentive to invest in the extra training required to deliver high-quality services at low cost, providing yet another efficiency gain from quality-differentiated medical fees. JEL code: I13.
A model of the impact of reimbursement schemes on health plan choice
Journal of Health Economics, 1998
. Flat capitation uniform prospective payments makes enrolling healthy enrollees profitable to health plans. Plans with relatively generous benefits may attract the sick and fail through a premium spiral. We simulate a model of idealized managed competition to explore the effect on market performance of alternatives to flat capitation such as severity-adjusted capitation and reduced supply-side cost-sharing. In our model flat capitation causes severe market problems. Severity adjustment and to a lesser extent reduced supply-side cost-sharing improve market performance, but outcomes are efficient only in cases in which people bear the marginal costs of their choices. q
Premium subsidies for health insurance: excessive coverage vs. adverse selection
Journal of Health Economics, 1999
The tax subsidy for employment-related health insurance can lead to excessive coverage and excessive spending on medical care. Yet, the potential also exists for adverse selection to result in the opposite problem-insufficient coverage and underconsumption of medical Ž. care. This paper uses the model of Rothschild and Stiglitz R-S to show that a simple linear premium subsidy can correct market failure due to adverse selection. The optimal linear subsidy balances welfare losses from excessive coverage against welfare gains from reduced adverse selection. Indeed, a capped premium subsidy may mitigate adverse selection without creating incentives for excessive coverage. Published by Elsevier Science B.V.
Pricing Policies When Patients are Heterogeneous: A Welfare Analysis
SSRN Electronic Journal, 2016
We use a simple theoretical model to compare alternative regulation regimes for the reimbursement of medical innovations when responses to a new treatment (effectiveness) are heterogeneous within the eligible population. We study two dimensions: i) efficiency in selecting subgroups of patients for which the new technology is reimbursed, ii) distribution of the rent between firm and payer. We show that, when rational behaviour of profit maximizing firms is taken into account, stratified cost-effectiveness analysis and marginal valuebased prices lead to the same equilibrium, which is efficient only if the population is sufficiently homogeneous. Inefficiency arises because some patients that should be treated are not. On the other hand, prices based on the average value may allow for an efficient solution even when heterogeneity is large. With this pricing policy, efficiency may be achieved even when part of the rent is retained by the payer, provided that the degree of heterogeneity is sufficiently small. * We are grateful to the participants to the 17th European Health Economics Workshop, and in particular to the discussant, Lars Schwettmann, for helpful comments. The usual disclaimer applies.
2004
Insurance for prescription drugs is characterized by two types of cost-sharing: flat copayments and variable coinsurance. We develop a theoretical model to show that refill purchases of preventive drugs (compliance) are lower under coinsurance due to the consumer's exposure to variation in drug prices. Coinsurance creates countervailing incentives. Consumers who never comply under flat copayments might find it optimal to comply if they drew a relatively low price under coinsurance. In contrast, consumers who always comply under flat copayments might stop complying if they drew a relatively high price under coinsurance. Our theory shows the second effect dominates under certain distributional assumptions about health states. Empirically, we derive comparable models for compliance behavior in the two regimes. Using claims data from eight large firms, we focus our analysis on diabetes, a common chronic condition that leads to severe complications when not continuously treated with medications. Propensity score methods are used to create matched samples for the two insurance regimes. We find that when coinsurance and flat copayments have the same expected out-of-pocket of $9, at least 34% of patients under copayments would fully comply and refill their medication over the next 90 days, compared to only 24% under coinsurance. Similarly, under copayments, moving from the 25th percentile to the 75th percentile of cost sharing results in a significantly lower shift into the non-compliance state compared with coinsurance. Thus, the empirical results confirm the main theoretical predictions. This research is a substantial revision and extension of our earlier 2004 NBER working paper no. 10738.