DP7871 Health insurance competition: the effect of group contracts

Author(s): Jan Boone, Rudy Douven, Carline Droge, Ilaria Mosca
Publication Date: June 2010
Keyword(s): health insurance, health-plan choice, managed competition
JEL(s): I11, L13
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7871

In countries like the US and the Netherlands health insurance is provided by private firms. These private firms can offer both individual and group contracts. The strategic and welfare implications of such group contracts are not well understood. Using a Dutch data set of about 700 group health insurance contracts over the period 2007-2008, we estimate a model to determine which factors explain the price of group contracts. We find that groups that are located close to an insurers' home turf pay a higher premium than other groups. This finding is not consistent with the bargaining argument in the literature as it implies that concentrated groups close to an insurer's home turf should get (if any) a larger discount than other groups. A simple Hotelling model, however, does explain our empirical results.