Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange

Health insurers increasingly compete on their networks of medical providers. Using data from Massachusetts’s insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive “star” hospitals. highlight a theoretically distinct channel: consumers loyal to star hospitals incur high spending, conditional state, because they use these hospitals’ care. This implies heterogeneity in consumers’ incremental costs gaining access hospitals, posing challenge for standard policies. Along with unobserved sickness, this creates strong incentives exclude even risk adjustment place. (JEL D82, G22, H75, I11, I13, I18)