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  • What happens when health plans compete

    The New York Times - 09/01/2014

    Studies show that market entrances by insurers have a greater effect when there are few in a market, compared with when there are already many. (A more precise measure of competition takes into consideration enrollments into plans offered by insurers, not just number of insurers: A four-insurer market in which one has 90 percent of all enrollment is less competitive than a four-insurer market in which enrollment is split evenly.)

    Of course, other things influence premiums and their growth, like costs associated with hospital, physician or pharmaceutical markets. Rigorous research controls for such confounding factors when assessing the effects of competition.

    Steve Pizer of Northeastern University, Roger Feldman of the University of Minnesota and I exploited a rapid government revision of payment rates to private plans participating in Medicare Advantage markets in 2001. This revision allowed us to observe plan designs under two sets of payment rates offered close in time, and before confounding cost factors could have changed. From this natural experiment, we found that greater competition lowers premiums and raises benefits.

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