Employer contribution methods and health insurance premiums: does managed competition work?

Area of Science:

• Health Economics
• Market Competition Analysis
• Insurance Market Dynamics

Background:

• Health plans operate in a complex market with two distinct competitive stages.
• Employers and employees play crucial roles in health plan selection.
• Existing policies aim to increase competition among health plans.

Purpose of the Study:

• To model the two-stage competition between health plans.
• To identify key factors influencing competition at employer and employee levels.
• To evaluate the impact of employer strategies on health plan competition and premiums.

Main Methods:

• Derivation of a two-stage theoretical model of health plan competition.
• Analysis of the trade-offs between competition at different market stages.
• Empirical examination of employer contribution structures and their effects.

Main Results:

• Competition at one stage (employer selection or employee choice) can negatively impact competition at the other stage.
• Employer strategies like offering multiple plans and price-sensitive employees may not lower premiums as expected.
• Full employer premium payment leads to increased premiums with more plan offerings.

Conclusions:

• The structure of health plan competition is complex, with interdependencies between employer and employee choices.
• Policy recommendations to increase competition require careful consideration of potential unintended consequences on premiums.
• Findings offer insights for employers and policymakers designing health insurance markets.