title: Does health plan generosity enhance hospital market power?
abstract: 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 to 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.
authors.affiliation: Stanford University and National Bureau of Economic Research, Stanford, CA, United States.
authors.forename: Laurence C
authors.initials: LC
authors.lastname: Baker
authors.affiliation: Stanford University and National Bureau of Economic Research, Stanford, CA, United States.
authors.forename: M Kate
authors.initials: MK
authors.lastname: Bundorf
authors.affiliation: Stanford University, Hoover Institution, and The National Bureau of Economic Research, Stanford, CA, United States. Electronic address: fkessler@stanford.edu.
authors.forename: Daniel P
authors.initials: DP
authors.lastname: Kessler
mesh_terms: D004465:Economic Competition; D004469:Economics, Hospital; D006264:Health Benefit Plans, Employee / Q000191:economics*; D006801:Humans; D007345:Insurance Claim Review; D017059:Models, Econometric
keywords: Health economics