Selective Contracting and Foreclosure in Health Care Markets

M. Bijlsma, J. Boone, Gijsbert Zwart

Research output: Working paperDiscussion paperOther research output

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Abstract

We analyze exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all insurers.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages35
Volume2009-89
Publication statusPublished - 2009

Publication series

NameCentER Discussion Paper
Volume2009-89

Fingerprint

Foreclosure
Health care market
Exclusion
Contracting
Insurer
Insurance market
Industry
Double marginalization
Monopoly
Health care providers
Competitive effect
Profit
Exclusive contracts

Keywords

  • health insurance
  • uninsured
  • selective contracting
  • exclusion
  • foreclosure
  • anti-competitive effects

Cite this

Bijlsma, M., Boone, J., & Zwart, G. (2009). Selective Contracting and Foreclosure in Health Care Markets. (CentER Discussion Paper; Vol. 2009-89). Tilburg: Macroeconomics.
Bijlsma, M. ; Boone, J. ; Zwart, Gijsbert. / Selective Contracting and Foreclosure in Health Care Markets. Tilburg : Macroeconomics, 2009. (CentER Discussion Paper).
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Bijlsma, M, Boone, J & Zwart, G 2009 'Selective Contracting and Foreclosure in Health Care Markets' CentER Discussion Paper, vol. 2009-89, Macroeconomics, Tilburg.

Selective Contracting and Foreclosure in Health Care Markets. / Bijlsma, M.; Boone, J.; Zwart, Gijsbert.

Tilburg : Macroeconomics, 2009. (CentER Discussion Paper; Vol. 2009-89).

Research output: Working paperDiscussion paperOther research output

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N2 - We analyze exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all insurers.

AB - We analyze exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all insurers.

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Bijlsma M, Boone J, Zwart G. Selective Contracting and Foreclosure in Health Care Markets. Tilburg: Macroeconomics. 2009. (CentER Discussion Paper).