University of Toronto
Information about this author at RePEc
NBER Working Papers and Publications
|November 1995||The Effects of HMOs on Conventional Insurance Premiums: Theory and Evidence|
with Laurence C. Baker: w5356
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 ...
Published: American Economic Review, Paper and Proceedings, Vol. 86, no. 2, 1996, pp. 389-94