Barriers to entry of a vertically integrated health insurer: An analysis of welfare and entry costs

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Abstract

I investigate the reasons why market expansion attempts by vertically integrated health insurers have largely failed. I use an econometric model of consumer demand for hospitals and insurers to simulate entry of an integrated plan into 28 new markets. The results indicate that entry would increase social surplus by over $34 billion per year. I then investigate several potential barriers to entry. Three are particularly important. Integrated plans cannot attract enough enrollees to support their provider networks unless they exceed competitor quality levels and convince consumers of this benefit. Regulatory restrictions on plans building new facilities may also be important.

Original languageEnglish (US)
Pages (from-to)487-545
Number of pages59
JournalJournal of Economics and Management Strategy
Volume18
Issue number2
DOIs
StatePublished - Jun 1 2009
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Strategy and Management
  • Management of Technology and Innovation

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