Exclusive Contracts

[rakhkovs]

Hi, I'm working on my dissertation in economics about health insurance. I have some data on group health insurance contracts and some these contracts are exclusive. So, employer can't invite another insurer to compete with the first one. Could you please share you views on the following questions, your feedback is very much appreciated.

Do you guys use these contracts?

Can they really protect against the entry of cheap low quality insurer who would take all good risks?

What is the usual punishment for the employer who breaks this contract by inviting another insurer if any?

Do you need exclusive contract if you offer only high insurance contract or you may use them even if you offer a variety of low and high insurance contracts?

Is there trade off: managed competition will get employer low for insurance prices, however exclusive contract may get employer more (better quality) insurance (I assume employer is large enough to be attractive for several insurers?

If insurer offer several contracts to an employer how often is there subsidies from low insurance contracts to high insurance contract? I would think if these subsidies exist they would be more profound if there is an exclusive contract?

Thank you very much, I would be happy to hear your thoughts on these issues.

[Hackeni]

rakhkovs,

I haven't seen many exclusive contracts at my work (mostly involves large employers, from 5,000 to 300,000 lives). Some quick thoughts.

It's my personal opinion that exclusive contracts may increase efficiency (e.g., integrated systems for disease management and reporting etc.) and reduce adverse selection. However, it may eliminate the competitive pressure (e.g., to provide better rates while maintaining/improving quality) on the insurance company at renewal.

Your question: Can they really protect against the entry of cheap low quality insurer who would take all good risks?

In the marketplace, I think most insurance companies are competing based on their efficiency (e.g., effective reimbursement negotiations, managed expenses, etc.). Not the cheap low quality insurer that you are talking about - because I'd never link "cheap" and "low quality insurer" together. Besides, the health insurance companies are all heavily regulated by the state.

In addition, if a cheap low quality insurer is of consideration, it is a big risk and very unlikely for an employer to select a low quality insurer to be part of its portfolio offering. Low quality insurers are typically prone to errors and are often operating without much medical and utilization management efforts. The claims are the claims, with a low quality insurer I'd expect higher and higher trends on the employer's costs.

Adverse selection under a group contract is typically driven by costs to the policyholder/employee and the benefit designs. So, it depends on the employer's contribution strategy and the plans purchased.

Furthermore, an employer could adopt the risk-adjusted rating approach with the insurance companies in its portfolio to try to achieve a level playing field.

Alex

Originally Posted by rakhkovs

Hi, I'm working on my dissertation in economics about health insurance. I have some data on group health insurance contracts and some these contracts are exclusive. So, employer can't invite another insurer to compete with the first one. Could you please share you views on the following questions, your feedback is very much appreciated.

Do you guys use these contracts?

Can they really protect against the entry of cheap low quality insurer who would take all good risks?

What is the usual punishment for the employer who breaks this contract by inviting another insurer if any?

Do you need exclusive contract if you offer only high insurance contract or you may use them even if you offer a variety of low and high insurance contracts?

Is there trade off: managed competition will get employer low for insurance prices, however exclusive contract may get employer more (better quality) insurance (I assume employer is large enough to be attractive for several insurers?

If insurer offer several contracts to an employer how often is there subsidies from low insurance contracts to high insurance contract? I would think if these subsidies exist they would be more profound if there is an exclusive contract?

Thank you very much, I would be happy to hear your thoughts on these issues.

[FormLetter]

yes
yes
unknown
yes
yes
rarely on purpose

[rakhkovs]

1. Why do you offer exclusive contracts to some companies, but not to others?
2. What are the main benefits of exclusive contract for the insurer?
3. Are the additional contract provisions that usually go with the exclusive contracts, which are less frequent in a regular one?
4. What the costs and benefits of exclusive contract for the employer?
5. Can you commit to a schedule of future prices in an exclusive contract?
6. Does exclusivity connected with the guaranteed renewability of the contract?


Thank you very much for your answers. I appreciate them.