The welfare effects of restricted hospital choice in the US medical care market

Abstract

SUMMARYManaged care health insurers in the USA restrict their enrollees' choice of hospitals to within specific networks. This paper considers the implications of these restrictions. A three-step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer. The results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans. A welfare analysis, assuming fixed prices, implies that restricting consumers' choice of hospitals leads to a loss to society of approximately $1 billion per year across the 43 US markets considered. This figure may be outweighed by the price reductions generated by the restriction.

The value of coverage in the medicare advantage insurance market

“…Bene…ciaries value the size or breadth of the physician network because they must commit to a provider network at the time of purchasing insurance and a broader network reduces the probability of needing more expensive out-of-network services in the event of an illness. 21 The referral indicates the restrictiveness of the network. In addition to including the referral variable, the physician network size and the referral variable are interacted to capture the e¤ect of the 1 9 www.meps.ahr.gov 2 0 The information about each plan is available to the public through the medicare options compare website (http://www.medicare.gov/MPPF).…”

“…For instance, numerous studies have found that consumers tend not to travel far hospital services (e.g. Gaynor and Vogt (2003) and Ho (2006)). While the above arguments suggest that bene…ts in other geographic markets are valid instruments, it is important to note that if the bene…ts in other geographic markets are correlated with demand shocks, then the reported estimates are likely to be biased.…”

New Joints: Private providers and rising demand in the English National Health Service

“…We rst contribute to the literature on patient choice and modeling patient demand. In particular, we complement existing work that has estimated discrete choice models of hospital choice [Beckert et al, 2012;Kessler and McClellan, 2000;Ho, 2006], by showing that for non-emergency care these types of models could be enhanced or extended by including an outside option of no procedure.…”

“…Existing work on hospital choice has focused on which hospital patients choose, taking the set of patients as given [Beckert et al, 2012;Ho, 2006;Kessler and McClellan, 2000] 1 . However, for most nonemergency health conditions, hospital care can be delayed or avoided.…”

“…This evidence is particularly timely, given the substantial changes in hospitals choice sets that have taken place over the past two decades, generated by hospital consolidation (see Barro and Cutler [2000]; Gaynor and Town [2012a]; Gaynor [2011] and Gaynor and Town [2012b]), the growth of managed care in the United States [Barro and Cutler, 2000;Glied, 2000;Ho, 2006] 2 , and reforms to increase patient choice in a number of state run European health systems 3 . The existing literatures on all these changes and reforms have typically focused upon impacts on quality, price, expenditure or productivity, rather than on demand.…”