Competitive bidding for health insurance contracts

Lessons from the online HMO auctions

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

Healthcare is an important social and economic component of modern society, and the effective use of information technology in this industry is critical to its success. As health insurance premiums continue to rise, competitive bidding may be useful in generating stronger price competition and lower premium costs for employers and possibly, government agencies. In this paper, we assess an endeavor by several Fortune 500 companies to reduce healthcare procurement costs for their employees by having HMOs compete in open electronic auctions. Although the auctions were successful in generating significant cost savings for the companies in the first year, i. e., 1999, they failed to replicate the success and were eventually discontinued after two more years. Over the past decade since the failed auction experiment, effective utilization of information technologies have led to significant advances in the design of complex electronic markets. Using this knowledge, and data from the auctions, we point out several shortcomings of the auction design that, we believe, led to the discontinuation of the market after three years. Based on our analysis, we propose several actionable recommendations that policy makers can use to design a sustainable electronic market for procuring health insurance.

Original languageEnglish (US)
Pages (from-to)303-322
Number of pages20
JournalInternational Journal of Health Care Finance and Economics
Volume12
Issue number4
DOIs
StatePublished - Dec 1 2012

Fingerprint

Competitive Bidding
Health Maintenance Organizations
auction
Health Insurance
Contracts
health insurance
Technology
Government Agencies
Cost Savings
electronic market
Insurance
Administrative Personnel
Health Care Costs
Industry
Economics
Delivery of Health Care
Costs and Cost Analysis
costs
information technology
health insurance premium

Keywords

  • Auctions
  • Electronic market design
  • HMO
  • Health insurance procurement

Cite this

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abstract = "Healthcare is an important social and economic component of modern society, and the effective use of information technology in this industry is critical to its success. As health insurance premiums continue to rise, competitive bidding may be useful in generating stronger price competition and lower premium costs for employers and possibly, government agencies. In this paper, we assess an endeavor by several Fortune 500 companies to reduce healthcare procurement costs for their employees by having HMOs compete in open electronic auctions. Although the auctions were successful in generating significant cost savings for the companies in the first year, i. e., 1999, they failed to replicate the success and were eventually discontinued after two more years. Over the past decade since the failed auction experiment, effective utilization of information technologies have led to significant advances in the design of complex electronic markets. Using this knowledge, and data from the auctions, we point out several shortcomings of the auction design that, we believe, led to the discontinuation of the market after three years. Based on our analysis, we propose several actionable recommendations that policy makers can use to design a sustainable electronic market for procuring health insurance.",
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