Health plan competition in local markets

To examine the structure of local health insurance markets and the strategies health plans were using to respond to competitive pressures in local markets in 1996/1997.

Community Tracking Study site visits conducted between May 1996 and April 1997 in 12 U.S. markets selected to be nationally representative.

In each site, 36 to 60 interviews on local health system change were conducted with healthcare industry informants representing health plans, providers, and purchasers.

Relevant data for this article were abstracted from standardized protocols administered to multiple respondents in each site.

Although the competitive threat from national plans was pervasive, local plans in most sites continued to retain strong, often dominant, positions in historically concentrated markets. In all sites, in response to purchaser pressures for stable premiums and provider choice, and the threat of entry and to plans were using three strategies to increase market share and market power: (1) consolidation/geographic expansion, (2) price competition, and (3) product line/segment diversification that focused on broad networks and open-access products. In most markets, in response to the demand for provider choice, the trend was away from ownership and exclusive arrangements with providers.

Although local plans were moving to become full-service regional players, there was uncertainty about the abilities of all plans to sustain growth strategies at the expense of margins and organizational stability, and to effectively manage care with broad networks.