Bargaining, Pooling, and Premium Inflation in the Brazilian Small Group Health Insurance Market
In this month’s edition of the NOVA SBE HEALTH ECONOMICS & MANAGEMENT SEMINAR SERIES, Mateus Dias, PhD in Economics from Prinston University, whose research broadly focuses on health economics, covering market design, industrial organization, and the impact of policy changes on health outcomes, will discuss: Bargaining, Pooling, and Premium Inflation in the Brazilian Small Group Health Insurance Market
ABSTRACT:
Pooling is a widely used mechanism in regulated selection markets to contain price inflation and improve stability. I study one such regulatory change introduced by the Brazilian private health insurance market regulatory agency. The rule affects small group contracts, mainly provided by employers, and forces insurers to apply the same premium percentage change to every pooled contract. I leverage a unique dataset with premium percentage changes for all group contracts in Brazil and exploit a discontinuity with respect to the number of enrolees in each contract to identify the effect over premium changes of being pooled versus negotiating such adjustment. My results indicate that contracts with bargained changes experience premium increases about 13% lower. This difference is driven by differences in bargaining power between the two situations rather than differences in costs and not-for-profit insurers do not seem to take full advantage of their bargaining power. Finally, I show evidence suggesting that this particular pooling strategy, if anything, seems to generate low benefits accrued by contracts that would likely benefit from bargaining with insurers.
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OVERVIEW OF THE PRESENTATION:
🏥💡 Mateus Dias detailed the impact of a regulatory premium change in the Brazilian health insurance group market, which pooled small contracts within each insurer. Results indicate that pooled contracts unintentionally experienced higher premium increases compared to negotiated ones, particularly for for-profit insurers. Mateus result’s underline the importance of carefully designing pooling strategies to balance benefits and costs, while also considering bargaining power dynamics and insurer ownership in regulatory interventions.
While employer-sponsored insurance typically leverages bargaining power to negotiate lower premiums, Brazil's case presents a paradox where premiums for such plans rise substantially compared to individual insurance. This discrepancy stems from looser premium regulation in the group insurance market, prompting the Brazilian regulatory agency to implement pooling regulations in 2013. Despite intending to stabilize the market and mitigate premium hikes by imposing uniform increases across pooled contracts, this intervention raises questions about its efficacy, especially considering that premium changes remained unaffected post-regulation. This discrepancy motivates a closer examination of the effectiveness of pooling regulations in curbing premium inflation and ensuring market stability.
The study employs a fuzzy regression discontinuity design, supplemented by a conceptual model of employer-insurer bargaining, to assess the effects of the premium change regulation imposed by the regulatory agency. This analytical approach allows for a rigorous examination of the impact of the pooling regulation on premium increases for small group contracts. By systematically analyzing the data within the framework of employer-insurer bargaining dynamics, Mateus elucidates how regulatory interventions influence premium adjustments and bargaining power.
Contrary to the regulatory agency's intentions, results suggest that pooled contracts undergo higher premium increases compared to negotiated ones. This discrepancy cannot be solely attributed to cost variations, indicating the presence of employer bargaining power during premium adjustments, particularly for for-profit insurers. These findings emphasize the importance of carefully designing pooling strategies to optimize benefits and mitigate potential costs in the health insurance market. Despite the potential benefits of pooling, poorly designed strategies may lead to higher premium inflation without significant improvements in market stability. Moreover, the study underscores the significance of considering bargaining power dynamics and insurer ownership in regulatory interventions targeting small group markets, highlighting the need for nuanced approaches tailored to the market's complexities.
Overall, this paper offers significant contributions to various areas of literature. It expands the understanding of health insurance markets by highlighting the importance of considering bargaining power among small employers, shedding light on premium negotiations. Additionally, it advances the discourse on health insurance market segmentation and pooling by exploring the impact of pooling small contracts within insurers in a less regulated environment. Furthermore, it addresses a gap in the literature regarding the behavior of for-profit versus not-for-profit insurers, showcasing how for-profit insurers leverage bargaining power to maximize profits. These findings provide valuable insights for policymakers and regulators in navigating health insurance markets effectively.
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ABOUT MATEUS DIAS:
Mateus Dias is an Assistant Professor at Catolica Lisbon School of Business and Economics. He holds a Ph.D. in Economics from Princeton University and a M.A. in Business Economics from the Sao Paulo School of Economics – FGV. His research interests lie broadly within health economics, from its market design aspects and intersection with industrial organization to the effects that policy changes in these markets generate in health outcomes. His research has been published in journals such as The Review of Economic Studies and the American Economic Journal: Economic Policy.