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The welfare effects of restricted hospital choice in the US medical care market

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  • Katherine Ho

    (Economics Department, Columbia University, New York, USA)

Abstract

Managed care health insurers in the USA restrict their enrollees' choice of hospitals to within specific networks. This paper considers the implications of these restrictions. A three-step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer. The results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans. A welfare analysis, assuming fixed prices, implies that restricting consumers' choice of hospitals leads to a loss to society of approximately $1 billion per year across the 43 US markets considered. This figure may be outweighed by the price reductions generated by the restriction. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Katherine Ho, 2006. "The welfare effects of restricted hospital choice in the US medical care market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1039-1079.
    • Handle: RePEc:jae:japmet:v:21:y:2006:i:7:p:1039-1079
    DOI: 10.1002/jae.896
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    More about this item

    JEL classification:

    • I0 - Health, Education, and Welfare - - General
    • I1 - Health, Education, and Welfare - - Health

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