Essays on the Economics of Insurance and Healthcare Markets
This dissertation contains three chapters that investigate the role of asymmetric information in determining market outcomes in insurance and healthcare markets. The first two chapters focus on the U.S. automobile insurance market and how asymmetric information about consumer characteristics affect consumer and insurer behavior. The third chapter focuses on the U.S. healthcare market and studies how the financial incentives that arise due to price variation in the multi-payer system affect physician behavior when the physician has more information and the discretion to choose a treatment for the patient.
The first chapter, co-authored with Frank Sloan and Lindsey Eldred, quantifies the role of private information in automobile insurance policy choice using data on individuals' subjective beliefs, risk preference, reckless driving, insurer, and insurance policy characteristics merged with insurer-specific quality ratings distributed by independent organizations. We find a zero correlation between ex post accident risk and insurance coverage, reflecting advantageous selection in policy choice offset by moral hazard. Advantageous selection is partly attributable to insurer sorting on consumer attributes known and used by insurers. Our analysis of insurer sorting reveals that lower-risk drivers on attributes observed by insurers obtain coverage from insurers with higher-quality ratings.
The second chapter extends the work of the first chapter to quantifying the welfare impact of private information in an insurance market and evaluating potential policy interventions. Many studies show that asymmetric information exists in insurance markets, yet there is little consensus on the effectiveness of interventions in these markets. This chapter provides empirical evidence that improving information about risk is not always welfare-improving. I show how the theoretical effect of risk-rating can depend on whether the market is adversely- or advantageously-selected. I then estimate a structural model of insurance choice and reckless behavior to show that in the advantageously-selected U.S. automobile insurance market, risk-rating induces high-risk drivers to drop coverage, creating a negative externality and social welfare loss. Community rating improves welfare despite increasing asymmetric information.
The third chapter considers the impact of cross-payer price variation on physician behavior in the U.S., specifically for the case of births. A key innovation of the paper is to use data from multiple private payers---the Massachusetts All-Payer Claims Database. With these data, I ask how the change in reimbursement from one payer affects the probability that a physician performs a C-section on patients insured by that payer and by other payers. I use a difference-in-differences strategy that takes advantage of variation in contract change dates across the three largest private payers in Massachusetts. The results show that physicians are less likely to perform a C-section on a patient when the relative price the doctor receives from her insurer for a C-section decreases. This effect is concentrated among patients classified as medium-risk based on factors observed before the delivery, specifically women who reportedly experience long labor. These findings suggests that prices can be used as an incentive to change physician behavior, at least in the case of births. Whether this is welfare-improving depends on health impacts and patient preferences. Nevertheless, any policy that will affect prices paid to physicians---such as unilateral price changes by government payers and mergers of insurance companies or provider groups that affect bargaining power---should consider the downstream effects on utilization.
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