Conclusions and Implications for Policy Sample Clauses

Conclusions and Implications for Policy. ‌ Two-part pricing is well-known as a solution to the deadweight loss from monopoly, but it is frequently impractical. In health care markets, the observed structure of insurance contracts provides a means for achieving the efficient outcomes associated with two-part pricing. While it is not a panacea for informational problems in the insurance market, it can be an effective solution to static deadweight losses from monopoly, as we have shown. By partially decoupling monopoly profits from consumer prices, two-part health insurance can play an important role in the efficient delivery of health care, even in the presence of market power.

Conclusions and Implications for Policy. The presence of health insurance alters the welfare analysis of monopoly. Price-cost margins and even copayment-cost margins become unreliable yardsticks of welfare loss, which is more reliably measured in terms of reductions in quantity, or marginal increases in rates of uninsurance. Evidence from pharmaceutical markets suggests that drug therapies with less insurer presence exhibit greater deadweight loss from monopoly and greater gains from the elimination of market power. On the other hand, drugs with greater insurer presence seem to be priced off the consumer demand curve in ways that are inconsistent with the standard theory of monopoly behavior and monopoly loss. From a normative point of view, the observed structure of health insurance contracts provides a means for achieving the efficient outcomes associated with two-part pricing in goods markets. While it is not a panacea for informational problems in the insurance market, it can be a useful remedy to static deadweight losses from monopoly, as we have shown. The evidence suggests that the penetration of health insurance lowers the deadweight loss associated with market power, and facilitates the efficient extraction of rents by monopolists. In other words, a well-functioning insurance market transforms the problem of market power from one of efficiency into one of distribution. A review of health care markets in the late 1990’s highlights three interrelated trends: an increase in managed care as method of financing and delivering care; horizontal consolidation within insurer, hospital and physician markets, and the blurring of the vertical distinctions between these markets (Xxxxxx and Xxxx-Xxxxxx, 1999; 2002). Our analysis has important implications for analyzing the potential consequences of each of these trends. First, our analysis suggests that the recent increase in horizontal consolidation and market power of health care providers may or may not reduce social welfare; the impacts depend on the structure and functioning of the relevant health insurance markets. Moreover, if welfare reductions do occur, they will tend to take the form of uninsurance, rather than simple and direct quantity- restrictions by monopolists. Second, our analysis suggests that the rise in managed care and vertical integration of health care markets experienced in the 1990’s provides unique benefits to society. From a positive point of view, our analysis suggests that vertical integration in health care may be motivat...