Consolidation, Insurance Coverage & Tort Reform in Health Care Markets

Containing health care expenditures and extending health insurance coverage have been the most important health care policy issues in the U.S. Health care expenditures surpassed $2.3 trillion in 2008, more than three times the $714 billion spent in 1990 (Centers for Medicare and Medicaid Services (2010)), while more than one in five adults under age 65 (22%) was uninsured in 2009 (Kaiser Family Foundation (2010)). This dissertation investigates three topics related to either or both of these issues. In the rst chapter1, we analyze how market concentration in health care market affects the price of hospital services, which is an important factor that determines health care expenditures. In the second chapter, I propose a preliminary framework that enables us to explore which policy option extends coverage without imposing too much costs. The third chapter analyzes the effects of state tort reform, which has been considered as an effective mean to contain health care expenditures. The first chapter analyzes the relationship between insurer and hospital market concentration and the prices of hospital services. There has been substantial consolidation among health insurers and hospitals recently, raising questions about the effects of this consolidation on the exercise of market power. We use a national U.S. dataset containing transaction prices for health care services for over eleven million privately insured Americans. Using three years of panel data, we estimate how insurer and hospital market concentration is related to hospital prices, while controlling for unobserved market effects. We find that increases in insurance market concentration are significantly associated with decreases in hospital prices, while increases in hospital concentration are non-significantly associated with increases in prices. A hypothetical merger between two of five equally-sized insurers is estimated to decrease hospital prices by 6.7%. The second chapter employs a simulation approach to develop a model of health insurance coverage and to analyze the effects of the policies to extend health insurance coverage. The model is a microeconomic model of individual decision making with regard to health insurance coverage, health-care consumption, and insurer determination of premiums. I cal- ibrate the parameters of the model by simulated method of moments (SMM), using data from the Medical Expenditure Panel Survey (MEPS) in 2003. Introduction of a health insurance voucher in the individual health insurance markets is found to reduce the uninsured rate from 20.4% to 16.4%, whereas introducing the voucher in all health insurance markets reduces the rate to 9.2%. The change in social welfare is almost negligible under the former policy, whereas social welfare decreases by 5.9% under the latter. Mandating CDHP-type high-deductible plans decreases the rate of the uninsured to 13.2%, and social welfare in- creases by 21.4%. This study proposes a preliminary framework for the evaluation of policies for the uninsured. The third chapter analyzes the effects of one of tort reforms, caps on non-economic dam- ages, on the utilization and health outcomes among mothers and premature newborns, using hospital discharge data from year 2001 to 2007. Preliminary findings are as follows. Implementation of caps on non-economic damages is associated with 2:8% decrease in length of stay and 11:5% decrease in the usage of mechanical ventilation among premature newborns, and the caps are associated with 0:6 1:2% decrease in length of stay among mothers. There is no significant association between the implementation of the cap and the mortality of pre- mature newborns. By analyzing the effects of caps on the usage of specific procedures, this chapter contributes to the understanding of how physicians practice \defensive medicine" in obstetric and neonatal care.