Fee-for-Service, Capitation and Health Provider Choice with Private Contracts

TILEC Discussion Paper No. 2014-040

CentER Discussion Paper No. 2014-066

26 Pages Posted: 30 Oct 2014

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Date Written: October 25, 2014

Abstract

Contracts between health insurers and providers are private; i.e. not public. By modelling this explicitly, we find the following. Insurers with bigger provider networks, pay higher fee-for-service rates to providers. This makes it more likely that a patient is treated and hence health care costs increase with provider network size. Although providers are homogeneous, the welfare maximizing provider network can consist of two or more providers. Increasing transparency of provider prices increases welfare only if consumers can process the prices of all treatments involved in an insurance contract. If not, it tends to reduce welfare.

Keywords: private contracts, two-part tariffs, fee-for-service, capitation, any willing provider laws, price transparency

JEL Classification: I13, I11

Suggested Citation

Boone, Jan, Fee-for-Service, Capitation and Health Provider Choice with Private Contracts (October 25, 2014). TILEC Discussion Paper No. 2014-040, CentER Discussion Paper No. 2014-066, Available at SSRN: https://ssrn.com/abstract=2516299 or http://dx.doi.org/10.2139/ssrn.2516299

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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