Although the vast majority of Americans have private health insurance, researchers focus almost exclusively on public provision. Data on the private insurance sector is extremely difficult to obtain because health insurance contracts are complex, renegotiated annually, and not subject to reporting requirements. This study makes use of a privately-gathered national database of insurance contracts agreed upon by a sample of large, multisite employers between 1998 and 2005. To gauge the competitiveness of the group insurance industry, I investigate whether health insurers successfully negotiate higher premiums for employers with deeper pockets. I find they do, and this result is not driven by cross-sectional differences across firms or plans: firms with positive profit shocks subsequently pay higher premiums, even for the same healthplans. Moreover, this relationship is strongest in geographic markets served by a small number of insurance carriers. Further analysis suggests profits act to increase employers’ switching costs, and insurers exploit this inelasticity in markets where they have sufficient bargaining power. Collectively, the results imply a combination of switching costs and bargaining power of insurers yields uncompetitive outcomes in an increasing number of local markets.

Existing empirical estimates of merger effects are compromised by the fact that merging and nonmerging entities differ in unobserved ways that independently affect outcomes of interest. To obtain an unbiased estimate of the effect of consummated mergers, I propose an approach that focuses on the response of rivals to mergers and accounts for the endogeneity of exposure to these mergers. I apply this approach to evaluate the impact of independent hospital mergers in the United States between 1989 and 1996. Using the physical colocation of rivals as an instrument for whether they merge, I find a sizeable, one-time increase in price following a rival’s merger, with the greatest increase occurring among hospitals nearest the merging hospitals. These results are more consistent with predictions from structural models of the hospital industry than with prior observational estimates of the effects of hospital mergers.

Government agencies employ a variety of mechanisms for securing goods and services from the private sector. These include posting prices, reimbursing for costs, and soliciting competitive bids. Procurement of healthcare services offers several unique challenges. The supplier can influence the quantity of services provided. It is often difficult to even specify in advance exactly what services are to be purchased. Lastly, quality is difficult to measure. Healthcare purchasers have deployed a variety of payment mechanisms to cope with these challenges. We apply the theory of procurement to the case of cataract surgery. We recommend implementing a system that combines a gatekeeper with competitive bidding among operating physicians who must perform all necessary services, including treatment for complications, within a global fee. We conclude by discussing the strengths and limitations of this proposal.

This paper investigates whether management teams that fail to exploit regulatory loopholes are vulnerable to replacement. We use the U.S. hospital industry in 1985–96 as a case study. A 1988 change in Medicare rules widened a preexisting loophole in the Medicare payment system, presenting hospitals with an opportunity to increase operating margins by 5 or more percentage points simply by “upcoding” patients to more lucrative codes. We find that having room to upcode is a statistically and economically significant predictor of whether a hospital replaces its management with a new team of for-profit managers. We also find evidence that hospitals that replace their management subsequently upcode more than a sample of similar hospitals whose management did not change.

Estimated responses to report cards may reflect learning about quality that would have occurred in their absence (“market-based learning”). Using panel data on Medicare HMOs, we examine the relationship between enrollment and quality before and after report cards were mailed to 40 million Medicare beneficiaries in 1999 and 2000. We find consumers learn from both public
report cards and market-based sources, with the latter having a larger impact. Consumers are especially sensitive to both sources of information when the variance in HMO quality is greater.  The effect of report cards is driven by beneficiaries’ responses to consumer satisfaction scores.

This paper examines hospital responses to changes in diagnosis-specific prices by exploiting a 1988 policy reform that generated large price changes for 43 percent of Medicare admissions. I find hospitals responded primarily by “upcoding” patients to diagnosis codes with the largest price increases. This response was particularly strong among for-profit hospitals. I find little evidence hospitals increased the volume of admissions differentially for diagnoses subject to the largest price increases, despite the financial incentive to do so. Neither did they increase intensity or quality of care in these diagnoses, suggesting hospitals do not compete for patients at the diagnosis level.

Strategic investment models, though popular in the theoretical literature, have rarely been tested empirically. This paper develops a model of strategic investment in inpatient procedure markets, which are well-suited to empirical tests of this behavior. Potential entrants are easy to identify in such markets, enabling the researcher to accurately estimate the entry threat faced by different incumbents. I derive straightforward empirical tests of entry deterrence from a model of patient demand, procedure quality, and differentiated product competition. Using hospital data on electrophysiological studies, an invasive cardiac procedure, I find evidence of entry-deterring investment. These findings suggest that competitive motivations play a role in treatment decisions.

The 1983-1996 period saw enormous expansions in access to public health insurance for low-income children. We explore the impact of these expansions on child hospitalizations. While greater access to inpatient care may increase hospital utilization, improved efficiency of care for children who are also newly-eligible for primary care could lower hospitalization rates. We use a large sample of child discharges from the National Hospital Discharge Survey to assess the net impact of Medicaid expansions on hospitalizations during this period. We find that total hospitalizations increased significantly, with each 10 percentage-point rise in eligibility leading to an 8.4 percent increase in hospitalizations. Thus, the access effect strongly outweighs any efficiency effect produced by expanded coverage. However, we find some support for an efficiency effect: the increase in hospitalizations for unavoidable conditions is much larger than that for avoidable conditions that are most sensitive to outpatient care. Indeed, the increase in avoidable hospitalizations is less than half that of unavoidable hospitalizations, and it is not significant. We also find that expanded Medicaid eligibility reduced the average length of stay, but increased the utilization of inpatient procedures, so that the net impact on total costs per stay is ambiguous.

We examine whether and to what extent consolidation in the U.S. health insurance industry is leading to higher employer-sponsored insurance premiums. We make use of a proprietary, panel dataset of employer-sponsored healthplans enrolling over 10 million Americans annually between 1998 and 2006 to explore the relationship between premium growth and changes in market concentration. We exploit the differential impact of a large national merger of two insurance firms across local markets to estimate the causal effect of concentration on market-level premiums. We estimate real premiums increased by 2 percentage points (in a typical market) due to the rise in concentration during our study period. We also find evidence that consolidation facilitates the exercise of monopsonistic power
vis a vis physicians, whose absolute employment and relative earnings decline in its wake.

We evaluate the effect of tort reform on employer-sponsored health insurance premiums by exploiting state-level variation in the timing of reforms. Using a dataset of healthplans representing over 10 million Americans annually between 1998 and 2006, we find that caps on non-economic damages, collateral source reform, and joint and several liability reform reduce premiums by 1 to 2 percent each.  These reductions are concentrated in PPOs rather than HMOs, suggesting that can HMOs can reduce “defensive” healthcare costs even absent tort reform. The results are the first direct evidence that tort reform reduces healthcare costs in aggregate; prior research has focused on particular medical conditions.

Most non-elderly Americans purchase insurance through their employers, which sponsor a limited number of plans. We estimate how much employees would be willing to pay for the right to apply their employer subsidy to the plan of their choosing. We make use of a proprietary dataset containing information on plan offerings and enrollment for 800+ large employers between 1998 and 2006; the dataset represents over 10 million Americans annually. We estimate a model of employee preferences using the set of plans they are offered. Using the estimated parameters from this model, we predict employees’ choices in a hypothetical world in which additional plans in a market are available to them on the same terms, i.e. tax-free and subsidized by their employers. Holding employer outlays constant, we estimate that the median welfare gain from expanding choice amounts to roughly 20 percent of premiums. For the vast majority of employee groups and alternative model specifications, the gains from choice are likely to outweigh potential premium increases associated with a transition from large group to individual pricing.