The costs of lock-in in health care markets: evidence from hospital choice in Uruguay

Health care markets usually generate consumer lock-in because consumers can only change providers during open enrollment periods. This paper seeks to quantify the welfare cost of consumer lock-in. Changes in lock-in rules in the Uruguayan health care system allow me to develop and estimate a dynamic discrete choice model of demand for differentiated products, using administrative records on hospital characteristics, posted out-of-pocket prices, and individual choices between 2009 and 2013. Through counterfactual analyses I find that although reductions of the duration of lock-in would increase consumer welfare, large gains would only be obtained if lock-in reductions are combined with reductions in switching costs.