Abstract.

There has long been a public policy interest in market-based approaches to delivering publicly-financed health care. I study the impact of a form of Medicaid privatization whereby people eligible for Medicaid can select plans on an Affordable Care Act Marketplace and have the premium fully subsidized. I explore three economic forces introduced by this arrangement: increased insurer entry to the Marketplace, decreased enrollee premium-sensitivity from the fully-subsidized Medicaid population, and risk pooling between the Medicaid and non-Medicaid individual market populations. Using the all-payer claims database from New Hampshire, I estimate a structural model that captures these three effects and incorporates Nash-in-Nash bargaining between each insurer and a regulator. Despite insurer entry, I find that the premiums of the marketplace plans increase by 21% due to reduced price sensitivity and higher-cost Medicaid enrollees. Combining Medicaid with the Marketplace decreased the consumer surplus for the Medicaid population by $631 per enrollee per year and for the non-Medicaid population by $1,206, once I account for higher government spending. Reintroducing some enrollee premium sensitivity via a policy of auto-enrollment in low-premium plans restores some welfare losses. My estimates suggest that even in states with reasonably competitive marketplaces, more standard Medicaid Managed Care arrangements may be a more efficient way to supply fully-subsidized health insurance coverage.

Abstract.

Hospital spending on inpatient and outpatient care accounts for approximately 45% of US health care spending and is an important driver of overall growth in US health care costs. Despite the size and importance of this market, researchers have only recently begun to produce evidence documenting variation in hospital prices paid by private insurance. In this paper, we extend this literature using recently collected data from the RAND Hospital Price Transparency project. To examine sources of price variation, we first characterize the relative importance of geographic variation (across HRRs), hospital-level variation (across hospitals), insurer-level variation (within hospitals), and employer-level variation (controlling for hospital and insurer fixed effects) in explaining the overall variation observed in hospital prices. We next examine the extent to which variation in prices is consistent with existing models of bilateral price negotiation and construct semiparametric measures of consumer willingness-to-pay (WTP) for each hospital in our sample. For inpatient care, we find a positive association between hospital WTP and prices, but little relationship for outpatient. We find that nearly all price variation is explained by provider-specific characteristics, and little price variation is explained by patient, purchaser, or insurer characteristics. Our findings also suggest that price determination in the markets for inpatient and outpatient care may reflect very different processes.