Competition

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Market Concentration in Medicare Advantage

November 23, 2010 in Medicare, Medicare Advantage | 1 comment

From the Commonwealth Fund:

“The analysis says people have many plans to choose from but that enrollment is concentrated in a handful. It notes, for example, that the average Medicare beneficiary in 2010 has 33 plans from which to choose. But in 14 states and the District of Columbia, a single company (not the same one in each state) accounts for more than half of all Medicare Advantage enrollment.

And in 27 states and the District, three companies account for 75 percent of more enrollees.”

The question is whether ex-ante competition (beneficiaries having a large number of options) or ex-post competition (the market for Medicare Advantage being less concentrated) is important.  If the non-selected plans are good substitutes for the plans with a large market share, then the lack of ex-post competition is not a problem.  Likely, large plans have more market power to negotiate lower rates with physicians (which is a good thing for consumers).  If the large plans started charging higher premiums, beneficiaries may switch to another option which currently has lower market share.  Thus, ex-post market concentration does not necessarily indicate a lack of competition.

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Are health insurance markets competitive?

May 6, 2009 in Health Insurance | 2 comments

The answer: sometimes.  A study by Dafny (2009) finds that in markets with ten or more insurers, markets do seem to be competitive.  However, with six or less insurers, health insurers do have some market power due to switching costs.

“Using data on ‘fully insured’ health plans offered to employees of 184 publicly-held firms in over 100 geographic markets in the United States for the years 1998 to 2005, she finds that increases in company profits are associated with increases in health insurance premiums, but only in geographic markets served by fewer than ten major insurance carriers. In the most concentrated markets — those with six or fewer carriers – a 10 percent increase in company profits is associated with a 1.2 percent increase in health insurance premiums..

Further analysis suggests that in order to get lower rates, employers must be willing to change health plans. A plan switch is a ‘tough sell’ in good times because employees must identify in-network providers, transfer medical records, and figure out the claims reimbursement system. The data reveal that employers are ‘especially reluctant to drop health plans when profitable, a finding that supports the hypothesis that profits act to raise employers’ switching costs.’“ 

I would predict that integrated health IT and more regulation of minimum benefit levels could reduce switching costs.  However, increased minimum benefit levels will also drive up premiums.  I predict that switching out of integrated health delivery systems such as Kaiser Permanente would involve much higher switching costs for employees, since most Kaiser doctors are employed directly by the insurance company.  Thus, the patients would have to switch primary care providers (PCP) if their employer changed coverage.  On the other hand, switching between PPOs or less integrated HMOs might involve less switching costs since a patient’s PCP likely would accept insurance from a variety of health plans. 

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Should a Government Health Plan compete with Private Health Plans? A Rebuttal

March 31, 2009 in Health Insurance, Public Policy | 5 comments

Last month, I blogged about allowing a government-sponsored health plan to compete with private insurers.  Joe Paduda gives one argument in favor of a public health insurer that any economist would love: increased competition.  

“The reality today is that almost every market is already dominated by a very few health plans, so much so that in most markets, there really is very little market competition amongst health plans…In 96% of markets, at least one insurer has share higher than 30%; in almost two-thirds of the markets, at one insurer has share greater than 50%.”

Could a public health plan actually increase competition?

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Does competition improve health care quality?

January 30, 2009 in Academic Articles, Health Insurance, Quality, Supply of Medical Services | 3 comments

If economists decided to re-write the Ten Commandments, “Thou shalt love Competition” may make the list.  However, does competition always improve quality?  Even in the case of health care?

A paper by Scanlon et al. (2008) “…found no evidence of a strong and consistent relationship between HMO competition (measured either by the HHI or the number of HMOs) and plans’ scores on the CAHPS and HEDIS measures of health plan performance.”  The authors did find, however, that increased competition can lead to lower health premiums.  

Because price is easily observable and quality is not, it seems sensible that increased competition will push down prices, but may not improve quality.  Further, more competition means more fragmented medical care, which can increase the cost to provide quality health care services. 

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