Vertical integration of health insurance and care provision: Does it improve service delivery?

What happens to the delivery of health services when health insurers integrate with care providers? Health insurers and care providers can choose among different methods when organizing their mutual transactions. We distinguish between standard market- and hierarchical organization. In hierarchies, health insurance and care provision are integrated and coordinated by an overarching entity. This entity may want to lower costs in order to increase its profits. While this behavior may be desirable in light of the growing costs of health care, consumers and policy-makers fear that this containment of costs will come at the expense of quality. We test both hypotheses by analyzing empirical literature and find a strong negative link between integration and costs. Regarding quality, evidence is mixed. Integration seems to alter care experiences, reflecting skepticism towards or discomfort with the entity’s dominant role in providing health care. Objective quality data, such as mortality rates, fail to show a consistent negative effect of integration on health. Regarding the effect of integration on care processes, hierarchies excel in the provision of preventive care, but underprovide services to those who are most in need of health care. We explain our findings by referring to incentive structures at both the organizational and physician level. We conclude that integration of health insurance and care provision may only be beneficial for subgroups of patients. This implies that, optimally, governments should create a legal base for hierarchical organization while initiating quality transparency, such that these subgroups can select themselves into hierarchies.