Price Cap vs. Per-Unit Subsidies: Selection, Pricing, and Cross Subsidization (opens in new tab)

We evaluate subsidy mechanisms in the FCC's Rural Health Care program using administrative data covering the full population of participants. The original price-cap mechanism removes cost-containment incentives for health care providers. An ad valorem mechanism introduced in 2014 addresses this flaw by making providers bear 35% of costs. However, allowing consortium applications creates a new distortion: cross-subsidization from eligible to inel...