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

Authors

  • Katherine Ho

    Corresponding author
    1. Economics Department, Columbia University, New York, USA
    • Economics Department, Columbia University, 1037 International Affairs Building, 420 West 118th Street, New York, NY 10027, USA.
    Search for more papers by this author

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.

Ancillary