Job Market Paper
The Effect of Insurance Competition on Health Care Consumption
Competition in insurance markets affects not only the monthly premium but also the cost-sharing terms---e.g. copays and coinsurance rates--- of the offered products. These terms are particularly important because they determine the out-of-pocket price of medical care, and therefore may affect decisions made at the doctor's office. While providing medical care is the ultimate goal of government-sponsored insurance markets, we have relatively little evidence on how competition in the these markets affects medical consumption through this channel. In this paper, I estimate a model of competition in Medicare Advantage that can evaluate the effect of insurance competition on medical consumption and health. This relationship has three important dimensions. First, the effect of competition on cost-sharing terms is ambiguous, and I find that this ambiguity is empirically important. I show that, on average, less competition leads to higher levels of cost-sharing, but a merger between multi-product firms may lead some cost-sharing levels to increase and others to decrease. Second, I find that consumers respond to cost-sharing terms in their demand for medical care, and that primary care copays are a particularly important mechanism. I find that a $10 increase in the primary care copay leads to a 5.4% decrease in medical consumption. Finally, the welfare implications of a change in the level of cost-sharing depends on a trade-off between the cost of additional medical consumption and possible benefits to consumer health. I find evidence that, given estimates of the statistical value of a life, the additional cost of more medical consumption is outweighed by the effect on inpatient mortality.
Competition in insurance markets affects not only the monthly premium but also the cost-sharing terms---e.g. copays and coinsurance rates--- of the offered products. These terms are particularly important because they determine the out-of-pocket price of medical care, and therefore may affect decisions made at the doctor's office. While providing medical care is the ultimate goal of government-sponsored insurance markets, we have relatively little evidence on how competition in the these markets affects medical consumption through this channel. In this paper, I estimate a model of competition in Medicare Advantage that can evaluate the effect of insurance competition on medical consumption and health. This relationship has three important dimensions. First, the effect of competition on cost-sharing terms is ambiguous, and I find that this ambiguity is empirically important. I show that, on average, less competition leads to higher levels of cost-sharing, but a merger between multi-product firms may lead some cost-sharing levels to increase and others to decrease. Second, I find that consumers respond to cost-sharing terms in their demand for medical care, and that primary care copays are a particularly important mechanism. I find that a $10 increase in the primary care copay leads to a 5.4% decrease in medical consumption. Finally, the welfare implications of a change in the level of cost-sharing depends on a trade-off between the cost of additional medical consumption and possible benefits to consumer health. I find evidence that, given estimates of the statistical value of a life, the additional cost of more medical consumption is outweighed by the effect on inpatient mortality.
