Can we design a market for competitive health insurance? CHERE Discussion Paper No 53

CAN WE DESIGN A MARKET FOR COMPETITIVE HEALTH INSURANCE?

In theory, under managed competition everyone is better off:

> Consumers can exercise choice and cost-quality judgements that reflect their own preferences.
Instead of being forced into a standard insurance package, individual variations in preferences
are taken into account and can be exercised.

> Insurance plans are responsive to consumers’ preferences. Insurers will improve their market
position by providing different packages which meet consumer preferences.

> Physicians and other providers are respected by the insurers who are competing for their
participation. Each insurer needs providers to sign up to their contracts, so they must keep the
provider as well as the customer satisfied.

> Insurers provide value for money because consumers are cost conscious. Consumers will
respond to price signals by moving their business. Those who want more will have to be willing
to pay for it.

> Governments provide less from their budgets as the system is more efficient. This reduces the
demand on government expenditure, and improves consumer welfare.

> Insurers make a profit,

And perhaps

> Health outcomes are better (though whether this is a matter of social values, individual
preferences or marketing is not clear).

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