Selective contracting in health care

Health care costs are growing faster than national income in most countries and a fraction of population does not get access to affordable treatment. Selective contracting between insurers and health care providers is often presented as a way to meet these twin challenges. The idea is that insurance companies, which have the
incentives and means to monitor health care providers, could reduce their market power by selectively contracting with them. In a recent TILEC discussion paper, TILEC members Jan Boone and Gijsbert Zwart and co-author Michiel Bijlsma (Netherlands Bureau for Economic Policy Analysis) revisit this issue in a model where consumers can choose to remain uninsured and show that selective contracting does not only lead to positive effects. It can raise the price of uninsured care and it can lead to cheaper insurance for the wrong reason (restricted patient choice rather than cheaper inputs). The solution to these potentially anticompetitive effects is not to ban selective contracting, as the entire pattern of contractual relationships matters for determining the harmful or beneficial effects. The policy implication is instead that selective contracts should raise alarm bells if all insurers exclude a care provider with market power in the uninsured market.