Every Monday our authors provide a round-up of some of the most recently published peer reviewed articles from the field. We don’t cover everything, or even what’s most important – just a few papers that have interested the author. Visit our Resources page for links to more journals or follow the HealthEconBot. If you’d like to write one of our weekly journal round-ups, get in touch.
Price effects of a hospital merger: heterogeneity across health insurers, hospital products, and hospital locations. Health Economics [PubMed] [RePEc] Published 1st July 2019
Most economics literature indicates that hospital mergers typically result in higher prices. But what does higher prices mean? Does it mean higher prices for all services? Higher prices for all health insurers?
Many economic models assume that hospitals charge a standard base rate and charges for individuals’ procedures are a fixed ratio of the base across all hospitals. This approach would make sense in a DRG-based system where prices are proportional to the product of a hospital’s base rate and the Medicare Severity DRG specific weight for a given hospitalization.
In practice, however, it is possible for prices to vary across procedures, across different negotiated contracts with insurers, and even across different locations within the same hospital system. For instance, the economic theory in this paper shows that the effect of a hospital merger increases prices most when an insurer’s bargaining power is high. Why? Because if the insurer had weak bargaining power, the hospital already would have high prices; the marginal impact is only felt when insurers had market power to begin with. Another interesting theoretical prediction is that if substitution between hospitals is stronger for service A than service B, prices will increase more for the former product, since the merger decreases the ability of consumers to substitute across hospitals due to decreased supply.
In their empirical applications, the authors use a comprehensive nationwide patient‐level data set from the Netherlands, on hospital admissions and prices. The study looks at three separate services: hip replacement, knee replacement, and cataract surgery. They use a difference-in-difference approach to measure the impact of a merger on prices for different services and across payers.
Although the authors did replicate earlier findings and showed that prices generally rise after a merger, the authors found significant heterogeneity. For instance, prices rose for hip replacements but not for knee replacements or cataracts. Prices rose for four health insurers but not for a fifth. In short, while previous findings about average prices still hold, in the real world, the price impact is much more heterogeneous than previous models would predict.
The challenges of universal health insurance in developing countries: evidence from a large-scale randomized experiment in Indonesia. NBER Working Paper [RePEc] Published August 2019
In 2014, the Indonesian government launched Jaminan Kesehatan Nasional (JKN), a national, contributory health insurance program that aimed to provide universal health coverage by 2019. The program requires individuals to pay premiums for coverage but there is an insurance mandate. JKN, however, faced two key challenges: low enrollment and high cost. Only 20% of eligible individuals enrolled. Further, the claims paid exceeded premiums received by a factor of more than 6 to 1.
This working paper by Banerjee et al describes a large-scale, multi-arm experiment to examine three interventions to potentially address these issues. The interventions included: (i) premium subsidy, (ii) transaction cost reduction, and (iii) information dissemination. For the first intervention, individuals received either 50% or 100% premium subsidy if they signed up within a limited time frame. For the second intervention, households received at-home assistance to enroll in plans through the online registration system (rather than traveling to a distant insurance office to enroll). For the third intervention, the authors randomized some individuals to receive various informational items. The real benefit of this study is that people were randomized to these different interventions.
Using this study design, the authors found that premium assistance did increase enrollment. Further, premium assistance did not affect per person costs since the individuals who enrolled were healthier on average. Thus, the fear that subsidies would increase adverse selection was unfounded. The authors also found that offering help in registering for insurance increased enrollment. Thus, it appears that the ‘hassle cost’ of signing up for a government program represents a real hassle with tangible implications. However, the additional insurance information provided had no effect on enrollment.
These results are both encouraging and discouraging. Premium subsidies work and do not drive up cost per person. However, enrollment levels – even with a 100% premium subsidy and assistance registering for insurance – were only at 30%. This figure is far better than the baseline figure of 8%, but far from the ‘universal’ coverage envisioned by the creators of JKN.