The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market

Katherine Ho

NBER Working Paper No. 11819
Issued in December 2005
NBER Program(s):Health Care

Managed care health insurers in the US restrict their enrollees' choice of hospitals to within specific networks. This paper considers the implications of these restrictions. A three-step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer. The results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans. A welfare analysis, assuming fixed prices, implies that restricting consumers' choice of hospitals leads to a loss to society of approximately $1 billion per year across the 43 US markets considered. This figure may be outweighed by the price reductions generated by the restriction.

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Document Object Identifier (DOI): 10.3386/w11819

Published: Ho, Katherine. “The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market.” Journal of Applied Econometrics 21, 7 (2006): 1039-1079. citation courtesy of