The Effects of HMOs on Conventional Insurance Premiums: Theory and Evidence

Laurence C. Baker and Kenneth Corts

No 5356, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model of imperfectly competitive insurers that compete with HMOs for consumers who have private information about their health status. We illustrate two conflicting effects of increasing HMO activity on conventional insurance premiums. We term these effects market discipline -- HMO competition may limit the ability of insurers to exercise market power, thus driving prices down -- and market segmentation -- HMOs may skim the healthiest patients, thus driving insurers' costs and prices up. We empirically examine the relative importance of these effects using data from a firm-level survey that provides data on premiums, together with market-level measures of HMO activity. Our results suggest that the market segmentation effect is important, and that increases in HMO activity may increase insurance premiums.

JEL-codes: I1 L0 (search for similar items in EconPapers)
Date: 1995-11
Note: EH
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as American Economic Review, Paper and Proceedings, Vol. 86, no. 2, 1996, pp. 389-94

Downloads: (external link)
http://www.nber.org/papers/w5356.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:5356

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5356

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().