Non-price Competition and Risk Selection Through Hospital Networks

Health insurers can engage in risk selection through the design of their hospital networks. I measure the impact of risk selection incentives on hospital network breadth using a model of insurer competition in networks applied to data from Colombia’s health care system. I find that insurers risk-select by providing narrow networks in services that unprofitable patients require. Improving the risk adjustment formula increases media network breadth by 4.8% and consumer welfare by 2.8%. Simulations of the model with deregulated premiums show that the price and the non-price elements of insurance contracts are substitutes for risk selection.