Equilibrium Effects of Tiered Cost Sharing in the Market for Medical Care (Job Market Paper)
Abstract: In the market for medical care, prices paid by consumers and those received by providers are mediated by insurance plans, giving rise to moral hazard and blunted competition. In this paper, I study the effects of tiered cost sharing, an innovative plan design that uses a steep gradient in out-of-pocket costs to steer consumers toward low-cost providers. Using detailed administrative data from the State of New Hampshire, I estimate the impact of these incentives in both the short and long run. I first examine the rollout of tiered programs by the State's two largest insurers in an event-study framework to quantify the average effects on provider choices and payments. I next address the underlying mechanisms by looking specifically at consumer responsiveness to out-of-pocket prices on the intensive margin. Finally, I estimate a structural model of supply and demand to study the general equilibrium implications of this plan feature, and to compare it with other consumer-directed mechanisms such as reference pricing and high-deductible plans. I find that the tiered programs in New Hampshire led to a 30% reduction in payments for lab services and a 5% reduction in payments for endoscopic and arthroscopic services. I show that consumers respond modestly to spot prices on the intensive margin, conditional on the expected end-of-year price. Structural estimates suggest that targeted incentives affect payments through both demand shifting and equilibrium price changes, and that this design compares favorably with other related designs.
Work in Progress
Health Care Demand Elasticities at the Intensive and Extensive Margin
Abstract: The majority of prior work estimating the demand for health care focuses on the extensive margin. With the growth of consumer-directed health care, the intensive margin of demand becomes increasingly important. I develop an instrumental variable strategy to estimate demand elasticities on the intensive margin using transaction prices and average inertial plan cost sharing to instrument for individuals’ experienced spot prices. Using detailed administrative claims data, I apply this method to provide new estimates of the intensive margin elasticity of demand for a variety of shoppable services such as MRIs and arthroscopic knee surgery.
The Welfare Impact of Surprise Medical Bills