Health Care: Competition

Within the previous entry I outlined how the insurance industry is structured, how users benefit from services, and a few concerns that I have pertaining to customer pooling methods. In addition to the structural components, relationships between competitors, both public and private,contribute to the escalating cost and quality issues that are currently being shouldered by the federal government, enterprise, and individual.

Profit motives in the health insurance industry appear to be relatively straight forward. Insurance providers differentiate themselves through their mix of service offerings, price options, and network. Traditionally, each insurer utilizes a variety of different actuarial techniques to value and price risk to produce the most profitable policy pools – whether the most effective approach is through government pools or private pools has yet to be determined.
For the most part, the largest insurers offer the widest array of services, the largest in network resources, and the lowest premiums. Similar to all forms of insurance, there are also niche competitors who service much smaller and profitable risk pools that are of no interest to the largest players. In general, there are 3 competitive characteristics that lend themselves to an unhealthy and inefficient health industry:

  • Negotiating Power: For those who are insured this is a great benefit; however, pre-negotiated pricing also can contribute to burying and transferring the true cost of care. This pricing power is essential to keeping overall insurance costs down. I am not convinced entirely though that this reduces the total cost of care systemically; due in part to the fact that those with insurance pay less and those without pay more to achieve what I would consider to be a blended cost of care.
  • Networked Services: Health insurers work extremely hard to build barriers by establishing health care networks with service providers. While this approach may seem logical from a service delivery and pricing perspective, it can also have a long term approach of increasing costs. Patients who are forced financially to utilize services from providers who may not be the best in their industry. Services that are restricted to a network area restricts individual choice.
  • Outcome Based Care: Traditionally, health insurers have not been very effective at encouraging outcome based care cycles. Services are still being delivered and diagnosed and managed at the symptom level instead of placing additional emphasis on the full cycle of care from prevention to diagnosis to treatment. Also, the insurers have been relatively reluctant to drive additional metrics into the health service delivery sector. Care cycles should be evaluated to ensure that we are effectively identifying risks early on and working proactively to encourage health over an individuals life or cycle of care (as defined by Porter and Olmsted Teisberg) .

The competitive nature of health insurance encourages providers to expand their capabilities without necessarily delivering optimal value to customers. The focus of competition tends to derive from service offerings, risk pooling algorithms, and price, which is perceived to drive profitability; however, this is not always a true statement. Overall, the additional costs being transferred to the insured and uninsured to insurance competition must be evaluated to determine if health services are being delivered efficiently and effectively.

Competition can drive innovation and value for clients; however, it needs to be addressed whether or not the current form of competition based on price and service differentiation is really meeting the expectations of all the stakeholders involved. If is not, then restructuring and reevaluating competitive forces is necessary to define an industry in which customer value and insurer profitability are optimized.

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