How Important Is Price Variation Between Health Insurers?

Stuart V. Craig, Keith Marzilli Ericson, Amanda Starc

NBER Working Paper No. 25190
Issued in October 2018
NBER Program(s):The Health Care Program, The Health Economics Program, The Industrial Organization Program

Prices negotiated between payers and providers affect a health insurance contract's value via enrollees' cost-sharing and self-insured employers' costs. However, price variation across payers is hard to observe. We measure negotiated prices for hospital-payer pairs in Massachusetts and characterize price variation. Between-payer price variation is similar in magnitude to between-hospital price variation. Administrative-services-only contracts, in which insurers do not bear risk, have higher prices. We model negotiation incentives and show that contractual form and demand responsiveness to negotiated prices are important determinants of negotiated prices.

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Document Object Identifier (DOI): 10.3386/w25190