Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, July 14, 2010

Health insurance competition: the effect of group contracts

Posted by D. Daniel Sokol

Jan Boone (Department of Economics, CentER, Tilec, Tilburg University), Carline Droge (CPB Netherlands Bureau for Economic Policy Analysis), Ilaria Mosca (Sint Fransiscus Gasthuis), and Rudy Douven (Dutch Healthcare Authority and TILEC) examine Health insurance competition: the effect of group contracts.

ABSTRACT: In countries like the US and the Netherlands health insurance is provided by private firms. These private firms can offer both individual and group contracts. The strategic and welfare implications of such group contracts are not well understood. Using a Dutch data set of about 700 group health insurance contracts over the period 2007-2008, we estimate a model to determine which factors explain the price of group contracts. We find that groups that are located close to an insurers’ home turf pay a higher premium than other groups. This finding is not consistent with the bargaining argument in the literature as it implies that concentrated groups close to an insurer’s home turf should get (if any) a larger discount than other groups. A simple Hotelling model, however, does explain our empirical results.

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