Private health insurance industry today Funds 35 of all health care expenditures Provides coverage over twothirds of population Very pluralistic Many different types of health plan providers Health maintenance organizations ID: 485874
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A Brief History of the Private Health Insurance Industry
Private health insurance industry todayFunds 35% of all health care expendituresProvides coverage: over two-thirds of populationVery pluralisticMany different types of health plan providersHealth maintenance organizations,Preferred provider organizations, self-insurers, Third-party administrators, Traditional insurers with and without utilization reviewFor profit and not-for-profit entities
(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
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Number, Types, and Size Distribution of Health Insurers
Private health insuranceMany different health insurers,Commercial carriers, Blue Cross/Blue Shield (BCBS) plans, HMOs, Other types of managed care plans(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
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Number, Types, and Size Distribution of Health Insurers
Practices of private health insurersOffers its subscribers a choice among traditional plans and various types of managed-care plans.May specialize in either group or individual health insurance, or may choose to offer both. Often are licensed to underwrite and sell health insurance in more than one state.(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
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Number, Types, and Size Distribution of Health Insurers
How to measure concentration / distribution?Herfindahl-Hirshman Index (HHI) (Herfindahl score)(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
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Number, Types, and Size Distribution of Health Insurers
Private health insurersNational level: relatively large number State level: a few large sellersRobinson (2004)HHI > 1,000 in all but 3 statesHHI > 1,800 in all but 14 statesHighly concentrated Metropolitan statistical area (MSA)American Medical Association (AMA)HHI > 1,800 in 96 percent of the MSAs analyzed
(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
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Number, Types, and Size Distribution of Health Insurers
Health insurance mandateRequires that an insurance company (or a health plan) covers specificBenefits, Health care providers,Patient populationsInefficienciesIf the costs of the state mandates are not justified by their benefits(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
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Barriers to Entry
Scale economies in administering health insuranceExisting firms with large volumes of output can underprice new, low-volume competitors and discourage their entryEmpirical evidenceBlair et al. (1975) Long-run economies of scale exist(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
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Conduct of the Private Health Insurance Industry
Oligopoly with a relatively large competitive fringeFew insurers account for a relatively large proportion of earned premiumsEntry barriers do not seem to seriously impede entry into the industryRelatively large competitive fringe. Significant amount of price competition(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
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The Dominant Insurer Pricing Model
Some health insurersHave become quite dominant over timeWhile others have remained fairly small in terms of market shareOrganizations become dominant becauseSheer luck (first-mover advantage), Technical and pecuniary economiesSuperior performance, Mergers with other organizations(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
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