ABSTRACT
Health insurance reduces the incentives for consumers to search for and choose low-priced physicians and hospitals. Consider the impact of health insurance on the degree of price competition among doctors and hospitals. When customers have more complete coverage, the provider has less incentive to reduce price. Health maintenance organizations combine the insurer with the doctors and hospitals to eliminate the moral hazard incentive to overuse medical care that is inherent in traditional third-party insurance. Preferred provider organizations are contracts among insurers, providers, and consumers. Budgetary concerns led to important policy developments in the Medicare and Medicaid programs, which in turn led to changes in the market for private health insurance. The policy response to this problem is likely to affect health insurers and their new competitive tools. A uniform national health insurance plan would narrow the choices in the current market and would end competition to reduce costs through innovative health insurance.
