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Faculty News September 20, 2021

Office Hours with Princeton Professor Kate Ho

Kate Ho Office HoursEditor’s Note: This piece is part of a series profiling Princeton Economics faculty. 

Before earning her Ph.D. in economics, Princeton Professor Kate Ho spent four years as Chief of Staff to the UK Minister of State for Health. When she took the job, Ho had just finished an undergraduate degree at Cambridge and was still exploring what kind of career might be the most rewarding and meaningful.

Though she would ultimately enter academia, Ho says that her early work experience in government played a major role in determining the issues she studies today. 

“Doing that job at an early stage of my career gave me a strong sense of the importance of the decisions made by policymakers—and their interactions with the health care industry—for the overall effectiveness of the health care system.”

By working in government, Ho saw what happened when important decisions had to be made blind. If no similar policy changes had been made in the past, policymakers had no history to learn from. 

In the 16 years since she finished her Ph.D., Ho has sought to fill this gap by building models with real-world policy implications.

“I moved into academia because I wanted to build ways of thinking about the world. I wanted to break out the different possible effects of a policy change that could help inform policy decisions.”

At Princeton, Ho serves as co-director, along with Janet Currie, of Princeton’s Center for Health and Wellbeing. She is also a co-editor of the journal Econometrica and a member of the Econometric Society.

Without policy intervention, reduced insurer competition harms consumers

As a researcher, Ho studies the industrial organization of health and medical care markets, examining interactions between health care companies and how those interactions affect patient outcomes. 

In “Insurer Competition in Health Care Markets,” a paper that won Econometrica’s prestigious Frisch Medal in 2020, Ho and her co-author Robin Lee studied how competition between insurance companies can affect what patients ultimately pay. 

By using data from California to model bargaining between insurance companies and employers and between insurance companies and hospitals, they illustrated the complex mechanisms through which increased or decreased insurer competition can affect the cost of insurance premiums or services at hospitals. 

Ultimately, the model shows a potential role for policy intervention, particularly as health care insurance companies merge and markets operate with less competition. 

“Unless the cost of premiums are constrained through regulation or influenced by negotiations with employers, reduced insurer competition typically reduces overall consumer welfare,” said Ho.

Highlighted Research
Insurer Competition in Health Care Markets
with Robin Lee

“Don’t be afraid of complexity.”

In her most recent work, Ho has taken on an even more complex task: investigating upstream and downstream negotiations, across pharmaceutical companies, over U.S. prescription drug prices.

“Like our work on insurance competition, there is market power at every stage of the vertical chain,” Ho says. “But the setting is more complicated, with more players in the market and side-payments between players.”

To study these relationships, Ho and Lee have developed a model of negotiations between drug companies and intermediaries, called Pharmacy Benefit Managers, who work on behalf of insurance companies to set prescription price discounts. By doing this, they aim to help policymakers understand what benefits are offered by these intermediaries and whether their participation in price-setting processes improves outcomes for consumers. 

“This work feels exciting because a model like this is needed to address many complicated policy questions,” Ho said. “For example, how intermediaries influence the cost of competing branded drugs, and how drug manufacturer mergers affect prices.”

These are big questions to tackle. But according to Ho, that’s the point. In fact, one of her biggest pieces of advice to young researchers is to not shy away from the hard questions.

“Don’t be afraid of complexity,” she said. “Sometimes it’s necessary to work through the whole model—through multiple stages and difficult econometrics—to come out with a reasonable answer. That’s okay. In fact, that’s the important work that matters to policymakers and others affected by what you’re studying.”

Ho also encourages young academics to lean into teaching. 

“You also never understand a subject as well as when you teach it,” she said. “When you first teach a class, make sure you know your subject—and then enjoy it! The students may well teach you (almost) as much as you teach them.”

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