Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange

Mark Shepard

American Economic Review, 2022, vol. 112, issue 2, 578-615

Abstract: Health insurers increasingly compete on their networks of medical providers. Using data from Massachusetts's insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive "star" hospitals. I highlight a theoretically distinct selection channel: consumers loyal to star hospitals incur high spending, conditional on their medical state, because they use these hospitals' expensive care. This implies heterogeneity in consumers' incremental costs of gaining access to star hospitals, posing a challenge for standard selection policies. Along with selection on unobserved sickness, I find this creates strong incentives to exclude star hospitals, even with risk adjustment in place.

JEL-codes: D82 G22 H75 I11 I13 I18 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1257/aer.20201453

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