WELFARE CONSEQUENCES OF ALTERNATIVE INSURANCE CONTRACTS IN THE MIXED FOR-PROFIT NONPROFIT HOSPITAL MARKET/

With the advent of managed competition, contingent insurance contracts are replacing traditional fee-for-service plans that were based on po oling principles. Under contingent contracts, insurance is tied to par ticular providers, while under pooling contracts, insurance is provide d for services rendered by all competing providers. To examine the imp lications of such contracts in hospital care, we model two competing h ospitals, a for-profit and a nonprofit, within the framework of a two- stage game. With various assumptions concerning the objectives of the nonprofit, we are able to explore the welfare implications of differen t insurance contracts and the overprovision problem.