Question

1.In the 1980s and 1990s many states passed Any-Willing-Provider (AWP) legislations that require managed care organizations to accept any provider into their network if the provider agreestotheconditions,termsandreimbursementrates. Supposeyouarehiredbyanagency to estimate the effect of AWP legislation on state-level hospital and physician expenditures (EXP). You have state-level data on expenditures, year AWP law passed, and demographic and health characteristics spanning 1980 through 1998. Note that both EXP and AWPvary across years and states. The state-level demographic and health characteristics include population density, percent of the population of African American race, HMO market share, real per capita income and unemployment rate. Assume that data are available for 50 states.

A.[20 Points] What approach would you use to estimate the effect of the policy change (i.e.,AWP) on total hospital and physician expenditures? Specify your model (the equation and important assumptions), and then explain your estimation approach.

B. [10 Points] Do we need to worry about potential endogeneity in AWP? Explain.

Hint:

You have panel data on 50 states (n= 50) and 9 years (t = 9). In part (A), set-up a linear panel data model with dependent variable EXP and key explanatory variable AWPit, other regressors (population,....unemployment rate), year dummies, individual effects and the idiosyncratic error term. Note AWPit = 1 if state i passed the law (or the law was in effect) during year t. Depending on the assumptions you make, you can in principle use fixed effects, random effects or first difference. You need to explain your chosen approach. The FE estimator might be preferable, though.

For part (B), explain why the AWP legislation might be endogenous. Basically, if the AWP legislation is related to the underlying changes in health expenditures, then AWP may be endogenous. This is the so called policy endogeneity. If states implement the legislation in response to upward trends in health expenditures, then AWP may be correlated with the idiosyncratic error term.

Answer 1

Any Willing Provider” statutes is usually referred as , “Any Authorized Provider,” which are laws that health care providers for becoming the network providers of carriers. The statutes prohibit the carriers of insurance for limiting membership included in provider networks which is established on characteristics like geography etc. It is depended on the will of the provider to be able to fulfill the conditions of the network membership established by the carrier. The scope of laws can be broad and it's application is in licensed providers. It has limited scope. The willing Provider” laws apply to the policies that are state regulated and these are usually self funded insurance plans.

It is necessary to have a clause for insurance companies who use the selective contract and this clause should be able to take the price that is being offered. Volume cannot be assured under such law. It is most likely done to retard competition.