Dissertation Title:  "Quality Information and Quality Competition In the Managed Care Health Insurance Market"

This thesis explores three aspects of quality information and quality competition in the managed care health insurance market. In the first chapter, economic theories of non-price competition and insurance market competition are combined to develop a theoretical model of the managed care health insurance market. This model generalizes previous models of insurance markets and identifies the inefficiencies of the private market in promoting social welfare. The results of the model suggest the development of non-market mechanisms to improve quality and highlight the importance of risk-adjustment.

In the second chapter, another model is developed to understand the impact of overlapping provider networks on quality competition between health plans. Overlapping provider networks imply a shared set of inputs for health plans competing in the same market. This organizational phenomenon is shown to generate an externality that leads to lower equilibrium levels of quality and reduced incentives for quality improvement. The results of the model have implications for the economic evaluation of exclusive provider networks; it is found that exclusivity may lead to improvements in quality and that these improvements should be weighed against potential losses from reductions in price competition. The findings of the model also suggest an important role for non-market mechanisms in stimulating the development and diffusion of new technologies to improve quality.

The third chapter is an empirical analysis of the effect of information about quality on consumers' health plan choices. A natural experiment was created when employees of Harvard University were given quality information on the health plans in which they could enroll. Panel data on employees and health plans were analyzed to assess the effect of the information. The results of an econometric analysis indicate that some employees did respond to the information by choosing a health plan with a higher quality rating. The analyses also found that employees differed in their responsiveness to the information according to characteristics such as age, employment tenure, and previous health plan enrollment. The primary policy implication of this analysis is that the provision of quality information, if improperly managed, may lead to distortion in the allocation of resources.