Employer contribution methods and health insurance premiums: does managed competition work?

We derive a two-stage model in which health plans first compete to be selected by employers and subsequently compete to be chosen by employees. We identify the key determinants of competition and show that increasing competition at one stage often comes at the expense of competition at the other stage. Many economists and policymakers have argued that in order to increase competition among health plans, employers should offer multiple plans and structure premium contributions to make employees more price sensitive.

Hospital competition in HMO networks.

We develop a framework for analyzing bargaining relationships between hospitals and HMOs under selective contracting. Using a unique dataset on hospitals in the Los Angeles area from 1990 to 1993, we estimate the determinants of actual negotiated prices paid to hospitals by two major HMOs. We find that a hospital's bargaining power, and thus its price, decrease when the HMO can readily turn to alternative networks that exclude the hospital.

An empirical investigation of procurement contract structures.

This article presents a model of procurement contracting with asymmetric cost information and investigates whether two of the model's predictions are consistent with actual contracts between hospitals and California's Medicaid program. The article first tests for the presence of a fixed-price payment region where Medicaid's payments are independent of hospitals' actual (but unobservable) production costs and then tests whether the size of the fixed-price region depends upon expectations about hospitals' costs. To conduct these tests, the article must first estimate hospitals' "unobservable" costs attributable to Medicaid patients.