Presented By: Department of Economics
Applied Microeconomics/IO Seminar: Network Formation and Bargaining in Vertical Markets: The Case of Narrow Networks in Health Insurance
Soheil Ghili, Yale University
Abstract
“Network Adequacy Regulations” intend to help consumers by forcing “narrow-network” insurance plans to include more hospitals. But they can also give hospitals excessive bargaining leverage, leading to increased reimbursement rates and premiums. To study this, I develop and estimate a model of network formation and bargaining between hospitals and insurers. Crucially, my bargaining formulation allows insurers to threaten to replace an in-network hospital with an out-of-network one. Applied to a health insurance market in Massachusetts, my model predicts that regulations mandating large minimum network sizes can raise prices substantially. Also, surprisingly, network adequacy regulations can cause “broad-network” plans to downsize.
“Network Adequacy Regulations” intend to help consumers by forcing “narrow-network” insurance plans to include more hospitals. But they can also give hospitals excessive bargaining leverage, leading to increased reimbursement rates and premiums. To study this, I develop and estimate a model of network formation and bargaining between hospitals and insurers. Crucially, my bargaining formulation allows insurers to threaten to replace an in-network hospital with an out-of-network one. Applied to a health insurance market in Massachusetts, my model predicts that regulations mandating large minimum network sizes can raise prices substantially. Also, surprisingly, network adequacy regulations can cause “broad-network” plans to downsize.
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