Research

"Paying a Premium on your Premium? Consolidation in the U.S. Health Insurance Industry", with Leemore Dafny and Mark Duggan, American Economic Review, April 2012, 102(2), 1161-1185.

Longer version available as NBER Working Paper No. 15434. For a non-technical summary, see NBER Digest (February 2010).
Abstract: We examine whether and to what extent consolidation in the U.S. health insurance industry is leading to higher employer-sponsored insurance premiums, using a panel dataset of employer-sponsored healthplans enrolling 10 million Americans annually between 1998 and 2006. Using “shocks” to local market concentration induced by a large national merger in 1999 to identify the causal effect of concentration on premiums, we estimate the increase in concentration between 1998 and 2006 raised real premiums by 7 percentage points. We also find evidence that concentration facilitates the exercise of monopsonistic power toward physicians, whose employment and earnings growth decline in its wake.

Abstract:The majority of private health insurance in the U.S. is administered or issued by for-profit insurers, but little is known about how for-profit status affects outcomes. We find that plausibly exogenous increases in local for-profit market share induced by conversions of Blue Cross and Blue Shield affiliates in 11 states (and 28 distinct geographic markets) had no significant impact on average premiums, uninsurance rates, or medical loss ratios. However, we do find significant increases in Medicaid enrollment and a reallocation of medical spending toward rivals of BCBS. Moreover, in markets where the converting BCBS affiliate had substantial market share, fully-insured premiums for employer plans increased significantly. The results suggest that the welfare effects of subsidies for new not-for-profit insurers, such as those in the Affordable Care Act, are likely to depend on entrants’ eventual market share.

"Delivering Bad News: Market Res po nses to Negligence", with David Dranove and Yasutora Watanabe, Journal of Law and Economics, Feb 2012, 55(1).

Abstract: One of the goals of the legal liability system is to ensure that sellers provide appropriate care. In addition to direct punishment by the legal system, reputation effects may work to deter negligence. The little available research evidence suggests that reputation effects are minimal, however. We develop a theory tailored to an environment, such as medicine, in which sellers are of heterogeneous quality and face two types of demand – “private” consumers who exhibit downward sloping demand (i.e., private health insurance) and “government” consumers who exhibit perfectly elastic demand at a fixed price (i.e., Medicaid insurance). The theory predicts that high quality sellers who suffer reputation losses will see their caseloads shift from private to government patients, while low quality sellers will lose government patients and may gain private patients. Combining individual patient-level data from Florida for the years 1994-2003 with physician-level data on litigation, we find evidence that physicians experience reputation effects that are consistent with the theory.

"Does the Market Punish Aggressive Experts? Evidence from Cesarean Sections", with David Dranove and Andrew Sfekas, B.E. Journal of Economics Analysis & Policy, Jan 2011, 11(2).

Abstract:In many credence goods markets, a seller simultaneously diagnoses a problem and offers a recommendation to fix it. One might wonder what prevents these sellers from always exaggerating their customers’ needs. In this paper, we offer a simple explanation, namely, consumers may spurn sellers who have a reputation for such “demand inducement”. We test this explanation by examining patient choice of obstetrician in Florida. In most of the counties that we study, we find that maternity patients are significantly less likely to choose obstetricians who perform more than the expected number of cesarean sections. We address simultaneity by instrumenting for “inducement propensity” using information about the obstetrician’s training. Although the instrument is weak, a series of robustness tests suggests that our findings are plausible while ruling out alternative explanations.

Abstract:We study the impact of information disclosure policies on firm performance by exploiting a policy change that provides plausibly exogenous “shocks” to firms’ reputations based on their allocation to coarse performance categories. Medicare grades dialysis firms using three coarse performance categories based on patient survival rates: worse than expected, as expected, and better than expected. We exploit the underlying continuous performance measures used to create these categories to implement a regression discontinuity design. We find firms that just barely fall into the worse than expected category subsequently experience a reduction in patient mortality rates. We provide suggestive evidence that this improvement is driven largely by strategic patient selection. There is no impact of ratings on overall patient volumes, but facilities receiving poor grades treat fewer well-informed patients post-disclosure. We do not find comparable supply-side or demand-side effects for firms that just barely fall into the better than expected category. The overall evidence is consistent with disappointing information being a significant motivator of firm behavior.

"Does Practice Make Perfect: An Empirical Analysis of Learning-by-Doing in Cardiac Surgery"