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July 28, 2009

Do health insurance providers compete?

One of the goals of many proposals to change our health care system is to get health insurance providers to compete more for consumers' business. That leads to the question: Do they compete now? What does the research show?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is timely because in the president's proposal - at least, we think in the president's proposal on health care reform - he wants to offer a public insurance option. One reason is that this will increase competition among insurance providers, so the question is very timely. And the answer is, it really depends. As in most industries, competition is based on how many competitors are there. And the research that's been done seems to indicate that the dividing line is about 10; that is, markets where there are fewer than 10 competing health insurance carriers are much less competitive than markets where there are more than 10. Another issue is the reluctance of many employers - and we have to remember that most insurance is now provided through employers - the reluctance of employers and employees to change insurance carriers. We get used to using a particular insurance carrier. There are costs to switching carriers, costs related to transferring records, getting used to a new reimbursement system, etc. That seems to be an impediment in competition, so I think we need to look at these elements when looking at the desire to spur competition. We need to look at how many carriers there are in a market. If there are fewer than 10, what can we do to increase that number, and also look at reducing the cost to consumers and to employers of switching carriers."

Posted by Dave at July 28, 2009 08:00 AM