Paper 1: The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured


This paper uses data on 27.6 percent of individuals in the US with employer-sponsored insurance coverage to examine the variation in health spending for the privately insured and understand how provider prices influence spending variation across the US. 


Abstract: We use insurance claims data covering 28% of individuals with employer-sponsored health insurance in the United States to study the variation in health spending on the privately insured, examine the structure of insurer-hospital contracts, and analyze the variation in hospital prices across the nation. Health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a very low correlation with Medicare spending. For the privately insured, half of the spending variation is driven by price variation across regions, and half is driven by quantity variation. Prices vary substantially across regions, across hospitals within regions, and even within hospitals. For example, even for a nearly homogeneous service such as lower-limb magnetic resonance imaging, about a fifth of the total case-level price variation occurs within a hospital in the cross section. Hospital market structure is strongly associated with price levels and contract structure. Prices at monopoly hospitals are 12% higher than those in markets with four or more rivals. Monopoly hospitals also have contracts that load more risk on insurers (e.g., they have more cases with prices set as a share of their charges). In concentrated insurer markets the opposite occurs—hospitals have lower prices and bear more financial risk. Examining the 366 mergers and acquisitions that occurred between 2007 and 2011, we find that prices increased by over 6% when the merging hospitals were geographically close (e.g., 5 miles or less apart), but not when the hospitals were geographically distant (e.g., over 25 miles apart). JEL Codes: I11, L10, L11.


Average Hospital Facilities Charges, Transaction Prices, and Medicare Reimbursements, 2011

Hospital charges, hospital transaction prices, and Medicare reimbursements in 2011

Total Private Spending by HRR, 2011

Risk-adjusted spending per privately insured beneficiary.

Within-Market Hospital Price Variation for Philadelphia, PA, 2011

Within-market variance in hospital prices for knee replacements and lower-limb MRIs in Philadelphia PA.