Biosketch:
Leemore Dafny is assistant professor of management and strategy at Northwestern's
Kellogg School of Management. Trained as an economist, Dafny uses econometric
methods to investigate the impact of public health insurance on healthcare
costs and expenditures and to study competition in healthcare markets.
Using nationwide data on Medicare beneficiaries, Dafny has examined
the impact of Medicare pricing on the quantity and quality of inpatient
admissions. She has also explored the strategic behavior of hospitals
in surgical fields, finding evidence that hospitals may acquire additional
experience in certain surgeries in order to deter entry by other providers.
Currently, Dafny is investigating the effects of quality reporting on
the Medicare HMO market, as well as exploring the impacts of hospital
mergers on inpatient prices. Dafny is also a Faculty Research Fellow
of the National Bureau of Economic Research in Cambridge, Mass.
Abstract:
Very little is
known about the degree of competition in the private health insurance
industry, despite its large and growing role in U.S. healthcare. Data
is extremely difficult to obtain because health insurance contracts are
complex, renegotiated annually, and not subject to reporting requirements.
This study explores competitive behavior in local geographic markets by
making use of a privately-gathered national database of insurance contracts
agreed upon by a sample of large, multisite employers. I search for evidence
of direct price discrimination by examining whether insurers successfully
charge higher premiums to more profitable firms. I find they do, and the
results are robust to specifications that rely only on shocks to the profits
of given company over time and thus use no cross-firm variation. Moreover,
the practice is strongest in markets with few insurers. Specifically,
I find a multisite firm with a 10-percentage-point increase in profit
margins will subsequently pay 1.5 percent more for health insurance, but
only at sites served by 6 or fewer major carriers. This evidence of direct
price discrimination suggests that, at least in some markets, imperfect
competition among carriers is leading to higher health insurance premiums.
