For- vs. not-for-profit insurers

The question arose on Twitter how for- and not-for-profit insurers differ. There’s at least one paper on this subject (h/t Janet Weiner). [Update: There’s another.*] I noted it once in a reading list, but never posted details. Let’s fix that.

From Does it Matter if Your Health Insurer is For-Profit? Effects of Ownership on Premiums, Insurance Coverage, and Medical Spending, by Leemore Dafny and Subramaniam Ramanarayanan (NBER, 2012):

In this study, we use a large, national panel dataset on employer-provided insurance between 1997 and 2009 to study the effect of ownership status on self and fully-insured premiums. We supplement these data with state-level measures of insurance coverage and medical loss ratios. […]

A 27-percentage point increase in local FP [for profit] share (one standard deviation) is predicted to raise fully-insured premiums by roughly 7 percent; the effect on self-insured premiums is smaller and cannot consistently be distinguished from zero. Importantly, we do not observe different pre-conversion price trends in markets ultimately experiencing conversions relative to markets whose BCBS affiliates attempted but failed to convert.

[W]e find heterogeneous effects of conversions in markets with different degrees of BCBS activity. Specifically, we estimate that fully-insured premiums increased roughly 13 percent when converting BCBS plans had shares in excess of the mean pre-conversion BCBS share (20% in our sample), and roughly zero when pre-conversion share fell below the mean. Consistent with oligopolistic pricing behavior, price changes in markets with high preconversion BCBS share were similar for both BCBS and its rivals. It is possible that quality improvements “warranted” the price increases, but we find this explanation somewhat implausible given the similarity in price changes across all insurers. While converting plans underwent major overhauls during which quality improvements could have been implemented, rivals (in general) did not. One would have to believe that rivals made quality improvements of essentially the same market value as BCBS in all markets, i.e. greater improvements where BCBS was relatively more dominant and smaller improvements where BCBS was smaller. Given the challenges associated with generating and marketing changes in quality, as well as the fact that most rivals to BCBS in our sample are national firms, we conjecture that quality improvements likely did not account for all of the observed price increases following conversions. […]

[T]he findings have several implications for regulatory and competition policy vis-à-vis insurers. First, it appears that sizeable FP insurers are more likely to exercise market power via price increases than are comparable NFP [not-for-profit] insurers. Second, pricing actions by dominant insurers have a ripple effect on rivals’ prices, further solidifying the evidence pointing towards oligopolistic conduct in many local insurance markets. Third, there is no evidence that NFP and FP insurers charge different prices in the large group market when both are relatively small. These findings suggest that subsidies for de novo NFP insurers (such as those included in the Affordable Care Act) are likeliest to generate value if they facilitate the creation of relatively large players.

Here are two prior posts on for- vs not-for-profit hospitals and nursing homes.



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