Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange

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Health insurers increasingly compete on their covered networks of medical providers. Using data from Massachusetts’ pioneer insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive “star” hospitals. I highlight a theoretically distinct selection channel: these plans attract consumers loyal to the star hospitals and who tend to use their high-price care when sick. Using a structural model, I show that selection creates a strong incentive to exclude star hospitals that challenges the effectiveness of standard policies. A key reason is the connection between selection and moral hazard in star hospital use.


NBER Working Paper #22600


Revise & Resubmit, American Economic Review

Last updated on 10/02/2020