Interdisciplinary Health Seminar: Kate Ho (Columbia) “Insurer Competition and Negotiated Prices”

Event time: 
Thursday, April 23, 2015 - 4:15pm through 5:30pm
Event description: 

Professor Kate Ho, Columbia University, Associate Professor, Department of Economics

“Insurer Competition and Negotiated Hospital Prices” 

Abstract: We examine the impact of insurance competition on negotiated hospital prices in the US private insurance market. There is a perception among  commentators that much of the problem of health care cost containment could be solved by increasing competition between insurers. We develop a theoretical bargaining model and use it as the basis of two empirical analyses that investigate  the impact of insurer competition on hospital prices. We demonstrate that, while there are benefits of insurer competition, the complex interactions between insurers and other players in the market imply that there are also indirect effects which may not be welfare-improving. In particular, in markets where some hospitals can be viewed as “must-haves” on insurers’ networks, the effect of insurer competition differs substantially across providers, favoring larger centers of excellence over smaller local hospitals. This in turn both affects premiums and generates hospital investment and merger incentives that are potentially important for policy. The implication is that the benefits of encouraging insurer competition differ by market, and a correct assessment should take account of long-run investment incentives as well as short-run premium effects.

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