All markets have “sides” in a loose form of the term. What is different in a two-sided market relative to a one-sided one is the presence of inter-group network externalities or volume sensitivity to relative prices (as I described in the post). You won’t see this in just any old market. While there are two “sides” in any exchange that does not make the market for that exchange a two-sided one in the formal sense. Apart from the effect on supply and demand that can be modeled in conventional one-sided market theory, in general there is no externally on buyers when there are more sellers and vice versa.

We see a cost increase with reduction in benefits. A lot of us are waiting for the final plan details so we can compare them to our spouse’s plan and decide from there. Understood that cost reductions are everywhere. At least there’s a maximum out-of-pocket expense – a good reason to maximize use of the Health Care Spending Account.

What’s interesting is that it seems obvious that there are many “sides” to a market. Why wasn’t this done before? How many “sides” can you model before it reduces to either a flat or Gaussian distribution? Some food for thought.

In general throwing employers into the mix makes it more complex. It is at least a three-sided market with the insurer mediating the interests of employers, individuals, and providers.

But that’s not what you’re asking about. Your questions don’t fit into a multi-sided model framework because you’re talking about a single employer. Inter-group network externalities only apply when the number of members of one group affects the utility of another group. Your employer will only be one employer.

To explain your employer’s behavior I don’t think you need that much complexity. The employer is minimizing costs. By directing all employees to one plan it can presumably negotiate a lower price.

The employer is attempting to minimize health risks (hence costs) by rewarding good health with extra credit. So, if you stay in shape and don’t get high cholesterol and don’t smoke and can prove it to your employer you are cheaper for them to insure. They split the savings with you by giving you some extra health credits.

I wouldn’t call this profit at the expense of privacy. The employer is trying to partner with you to reduce its costs and it is willing to share some credit with you. You could argue that you should get a bigger cut of the discount the employer gets. That’s a distributional issue. As a class all employees are benefiting fully from lower employer costs through higher wages and benefits. Are some getting bigger wage and benefit increases than others? That’s really the only point to argue (in general, not knowing your specific circumstances in greater detail).

How do you explain my employer’s choice to only have one health care provider for its employees? The plan gives employees a certain amount of “credit” for out-of-pocket expenses. If you provide personal health information, they will increase that “credit” if you are in good health.

Ignoring the blatant profit at the expense of privacy issue, is this adjustable cost a two-sided market model or something else entirely?