Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets
American Economic Review
vol. 109,
no. 2, February 2019
(pp. 473-522)
Abstract
We evaluate the consequences of narrow hospital networks in commercial health care markets. We develop a bargaining solution, "Nash-in-Nash with Threat of Replacement," that captures insurers' incentives to exclude, and combine it with California data and estimates from Ho and Lee (2017) to simulate equilibrium outcomes under social, consumer, and insurer-optimal networks. Private incentives to exclude generally exceed social incentives, as the insurer benefits from substantially lower negotiated hospital rates. Regulation prohibiting exclusion increases prices and premiums and lowers consumer welfare without significantly affecting social surplus. However, regulation may prevent harm to consumers living close to excluded hospitals.Citation
Ho, Kate, and Robin S. Lee. 2019. "Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets." American Economic Review, 109 (2): 473-522. DOI: 10.1257/aer.20171288Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- D85 Network Formation and Analysis: Theory
- G22 Insurance; Insurance Companies; Actuarial Studies
- H75 State and Local Government: Health; Education; Welfare; Public Pensions
- I11 Analysis of Health Care Markets
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health