Menu

A. Sera Diebel

Ph.D. candidate in economics

JOB MARKET PAPER:

Vertical Integration in the U.S. Health Care Market: An Empirical Analysis of Hospital-Insurer Consolidation

This paper examines the effects of vertical integration between hospitals and insurers on market outcomes and welfare. To assess the impact on market outcomes, I estimate reduced-form regressions that demonstrate vertically-integrated entities engage in market foreclosure (both upstream and downstream), and offer lower-premium higher-quality health plans. To determine the overall impact on welfare, I estimate a structural model, use the estimates in a policy experiment that prohibits vertical integration, and calculate the change in consumer and producer surplus. The structural model captures consumer behavior by estimating discrete choice models of hospital and insurer demand, while it captures the hospital-insurer contracting process by estimating a bargaining model that reveals consolidation increases vertically-integrated hospitals' bargaining power. My findings illustrate that vertical integration acts as an entry barrier to the downstream market due to the cost advantages vertically-integrated entities achieve through upstream foreclosure. Additionally, I find that with the removal of vertical integration from the market, social surplus would increase by $20 billion per year. Banning exclusionary restrictions gets rid of market foreclosure, gives access to vertically-integrated entities, and enables insurers to contract with less expensive hospitals. As a result, insurers offer wider hospital networks and lower premiums that benefit consumers. Producer surplus also goes up as many hospitals and insurers enjoy higher profits driven by higher market shares and reduced costs. 

 

WORK IN PROGRESS:

Welfare Effects of Using Hospital Rate Setting as an Alternative to Bargaining  (with Nicholas Diebel)

Prices paid by insurers to hospitals are determined by bilateral negotiations in all U.S. states except Maryland, where a unique all-payer rate setting health care regulation sets common prices for all insurers. Theoretical predictions on how bilateral bargaining affects total welfare are ambiguous. We empirically analyze how a Maryland style regulation would affect overall welfare relative to bilateral bargaining, using the New Jersey health care market as an example. Using hospital-, insurer-, and patient-level data from 2010, we estimate a structural model of hospital and insurer demand, and simulate consumer and insurer responses to the new price regime. We find that replacing bargaining with all-payer rate setting increases total surplus in the market. However, not all agents benefit, and the effects depend on how the largest player in our market, Blue Cross Blue Shield (BCBS), sets premiums. If BCBS sets premiums à la Bertrand Nash, consumer surplus decreases, but joint hospital-insurer surplus increases by more. The number of uninsured increases by two percent. Total surplus increases are robust to different pricing strategies of BCBS, which account for its non-profit status, but diminish the magnitude of surplus gain.

 

Welfare Impacts of Full-line Forcing Contracts in the U.S. Health Care Market 

In this paper, I study the welfare implications of bundling practices exercised by hospital systems in the negotiation process with insurers. Hospital systems offer full-line forcing contracts to ensure insurers carry all hospital system members in their network. These contracts may benefit consumers if the hospital systems offer discounted prices for their full-line of products, but they may also harm competition if insurers include system hospitals in their networks at the expense of individual hospitals that cannot offer such contracts.  In order to assess the overall impact on welfare, I estimate structural models of hospital and insurer demand along with supply side responses, and use the parameter estimates in a counterfactual policy experiment that prohibits such contracts. Results from counterfactual simulations suggest that removal of full-line forcing contracts from the market harms consumers. I also find insurers are better off in the absence of bundling as they can now maximize their profits by choosing networks that are not subject to contractual constraints. 

 

Location Choice of Immigrants: A Structural Analysis  (with David A. Jaeger)

The main finding of the previous research on immigrant location choice is that immigrants choose to locate in areas where the density of their ethnic group is high. Location characteristics, labor market characteristics, existence of welfare or social safety programs are the other determinants of location choice. However, no work to date has accounted for changes in tastes for locations with both observed and unobserved characteristics. Aiming to fill this void, in this paper, we use data from Immigration and Naturalization Service to examine the determinants of location choice of immigrants by estimating a random utility model that accounts for unobserved choice characteristics as well as heterogeneity in individual preferences for location characteristics.