Abstract
Commercial health insurers in California use provider capitation payments to different extents. These are similar to arrangements introduced by the recent health reforms to give physicians incentives to control costs. In a previous paper we showed that patients whose insurers used capitation incentives traveled further to access lower-priced, similar-quality hospitals than other same-severity patients. This paper predicts the implied effects of a move to widespread capitation. We show that, if the introduction of capitation prompted low-capitation insurers to act like high-capitation insurers, this would generate a 4-5 percent cost saving with some reduction in patient convenience but no reduction in quality.
Highlights
These insurers often pay large physician groups through capitation contracts under which the groups have an incentive to control hospital costs, either because they receive a fixed payment to cover the medical costs of their patients, or because they share in any savings made relative to some pre-agreed benchmark for hospital costs
In previous papers (Ho and Pakes 2011, 2013) we analyze hospital referral choices for patients enrolled in six California health insurers that use capitation contracts to different extents
We focus on commercially insured patients in Health Maintenance Organizations (HMOs) and analyze referral choices for women giving birth who are enrolled in the six largest insurers in the data other than Kaiser
Summary
We focus on commercially insured patients in Health Maintenance Organizations (HMOs) and analyze referral choices for women giving birth who are enrolled in the six largest insurers in the data other than Kaiser. We add structure and estimate a model where insurers agree on the absolute quality of the hospital for each severity level but differ in the weight they place on quality in the utility equation This allows us to represent preferences as a linear function of price, quality and distance which differs across insurers only in the coefficients of these variables. The preference function for patient i of insurer π visiting hospital h becomes: (1) Wi,π,h=θp,πp(ci,h,π) + απqh,s - d(li,lh) + εi,π,h where p(ci,h,π) is the price the insurer is expected to pay at hospital h for a patient who enters with condition ci, qh,s is the quality of hospital h for severity s, d(li,lh) is the distance between the patient's home and the hospital, and εi,π,h is the error term We use this equation to examine how the trade-offs between price, quality and distance vary with capitation rates. Highly-capitated more price-sensitive plans tend to send their patients further distances to obtain lower-priced service but do not tradeoff price against quality differently from other insurers
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