Does Health Plan Generosity Enhance Hospital Market Power?
We test whether the generosity of employer-sponsored health insurance facilitates the exercise of market power by hospitals. We construct indices of health plan generosity and the price and volume of hospital services using data from Truven MarketScan for 601 counties from 2001-2007. We use variation in the industry and union status of covered workers within a county over time to identify the causal effects of generosity. Although OLS estimates fail to reject the hypothesis that generosity facilitates the exercise of hospital market power, IV estimates show a statistically significant and economically important positive effect of plan generosity on hospital prices in uncompetitive markets, but not in competitive markets. Our results suggest that most of the aggregate effect of hospital market structure on prices found in previous work may be coming from areas with generous plans.
We would like to thank participants at the Stanford GSB Economics Brown Bag seminar series for helpful comments. Jack Boeglin and Tarun Narasimhan provided excellent research assistance. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Laurence C. Baker
Baker has served as a consultant to Kaiser Permanente and as an expert in litigation matters involving health insurers and health care providers.Daniel P. Kessler
Financial support for the proposed research was from Stanford University. In the last three years, I have received speaking and consulting fees from AHIP, United HealthCare, Vhi Healthcare, Sutter Health, and other integrated delivery systems. I have received grant support from the AHIP Foundation.
Laurence C. Baker & M. Kate Bundorf & Daniel P. Kessler, 2015. "Does health plan generosity enhance hospital market power?," Journal of Health Economics, vol 44(), pages 54-62.