[1] Expected Insurance Coverage and Pharmaceutical Innovation: Evidence from China's National Drug Price Negotiation Policy
How can developing countries foster pharmaceutical innovation when drug price negotiations risk eroding firms' incentives? China's National Drug Price Negotiation policy addresses this challenge by pairing substantial price cuts with expanded insurance coverage for innovative drugs, enlarging the effective market size. We examine its impact on innovation using a difference-in-differences design that compares clinical trials of new drugs (treated) with those of vaccines (untreated) in each disease group. The policy increases the number of trials by 0.56 per disease per year. The effects are particularly pronounced for more novel innovations and similar for domestic and foreign firms. We also find that the policy induces more pharmaceutical R&D firms, especially those of small size, to enter the market. Finally, we document increased collaboration and outsourcing across firms.
[2] The Downside of More: Choice Overload in Health Insurance Markets
Health insurance markets often offer multiple plans, yet consumers frequently choose strictly dominated options. Using two natural experiments in China's private health insurance market, we study how choice set size affects choice quality. An insurer exogenously expanded renewal menus from two to three plans and later reduced them back to two. Exploiting strictly dominated plans and a regression discontinuity design, we find that adding one option increases dominated choices by 8.4 percentage points (52%), while removing one reduces them by 11.0 points (49%). Evidence points to choice overload rather than changes in average plan quality as the main reason.
[3] Community Rating and Distortions of Relative Prices in Insurance Menus
How does community rating distort relative prices for vertically differentiated insurance plans? We show both theoretically and empirically that common community-rating approaches can distort price differentials in the opposite direction as distortions in overall price levels. Empirically, we show that partial age-based community rating in U.S. private health insurance exchanges generates marginal prices for generous coverage for older individuals significantly above marginal cost, often creating dominated options, while younger enrollees are subsidized on the margin. We develop theory on how these pricing distortions can impact the efficiency of sorting across plans and provide empirical evidence on their distributional impacts.
[4] Is Choice Overload a Problem for Health-Plan Choice? Evidence from the ACA Marketplace
Policy proposals have called for limiting the number of plan options in health insurance markets due to concerns that choice overload may impair individual decision-making. We analyze private health insurance markets in the federally administered Healthcare.gov exchange and document substantial variation across counties in the number of options enrollees face. We then exploit a sudden policy shock that led to a sharp relative price increase for a subset of health plans to examine whether people respond differently to price shocks in areas with larger choice sets. Contrary to the simplest predictions of choice overload, we find that enrollees in areas with very large choice sets responded somewhat more strongly to this relative price change. At the same time, we find that subsets of consumers who arguably should not have reacted to the price change nonetheless did so more in markets with a larger number of options. Our findings suggest that choice overload is not limiting consumers' sensitivity to plan features, but consumers are also not making clearly better choices in areas with larger choice sets.
[5] Decentralized Policymaking and Market Distortions: Evidence from China's Drug Formulary Design
Should public health insurance be administered at the national or sub-national level? This paper examines the issue in China's public health insurance drug formulary design. Before 2019, the central government allowed provinces to design their own public insurance drug lists. We find that provincial governments favor local firms, adding these firms' drugs disproportionately more to insurance coverage, while holding local demand fixed. We illustrate that a unified national formulary could eliminate such distortions, but may induce welfare losses due to the central government's incomplete information and disregard for the heterogeneity of local demand.
[6] Little Learning, Large Inertia: Deductible Choice in Swiss Health Insurance
Consumers often make suboptimal choices in health insurance markets, yet most of the evidence comes from particular populations. We study an entire national population making the same recurring choice: deductible choice in Switzerland's mandatory health insurance market, where benefits are standardized by law. Enrollees who first join the market (shorter-tenured) must make an active choice, while those already enrolled (longer-tenured) may default to their prior plan. We match the two groups on canton, gender, age, and health risk, and document a few stylized facts. First, enrollees' initial choice quality is high but imperfect: 70% of shorter-tenured enrollees hold the cost-minimizing deductible and 11% a dominated one, forgoing CHF 260 a year. Second, over the next four years, optimal rates stay flat and only 15% ever switch. Third, longer-tenured enrollees choose worse than their matched short-tenured peer, by 14 percentage points on both dominated and cost-minimizing choices. Fourth, switching rate falls steeply with age among longer-tenured enrollees but is flat among shorter-tenured ones. Fifth, stakes do not overcome the default: switching rises 7-9 points per CHF 1000 of forgone savings, then plateaus below 10%, and the same holds when the gain is measured in certainty equivalents, so risk aversion cannot explain the inaction. Sixth, suboptimal choice costs CHF 2.3 billion a year, of which CHF 0.86-1.1 billion is cross-subsidy whose removal would require base premiums to rise 3-4%. Our findings suggest that improving choice quality depends less on information or incentives than on the default itself.
[7] Hospital Mergers and Service Repositioning
Horizontal mergers are often associated with product reshuffling, which may have important anti-trust consequences. This article shows that hospitals merging with local competitors reposition service lines after the merger. We use hospital-level service lists data from American Hospital Association 2002 - 2012. To avoid endogenous selection into mergers, we estimate difference-in-differences models comparing hospitals merged later to those merged earlier. We find that merging hospitals eliminate duplicate services without reducing patient volumes. Hospitals within a system become more differentiated in service positioning after the merger. However, there is limited evidence that repositioning leads to significant cost reductions.
