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Collusion in the Private Health Insurance Market: Empirical Evidence for Chile

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Abstract

In September 2005, the Chilean Competition Authority filed a complaint against the 5 largest private health insurance providers for violation of antitrust laws. The 5 providers were accused of colluding to reduce the coverage of the plans offered to customers between March 2002 and March 2003. The main fact is that during that period these 5 providers reduced the coverage offered from 100% for hospitalization and 80% for ambulatory care to 90% and 70% respectively. As usual the observation of parallel conduct is not enough to infer collusion and it is required to observe additional factors that allow us to reject the hypothesis of providers behaving competitively. In this paper, we show that some specific characteristics of the health insurance markets generate barriers to entry and switching costs that allow the possibility of a collusive agreement. Then, we adapt an imperfect competition model of product differentiation to derive some testable propositions that allow us to distinguish between competition and collusion outcomes in the health insurance market in Chile. Finally, we show econometric evidence consistent with a collusive agreement among the 5 largest providers and inconsistent with a competitive equilibrium. . In particular, by comparing the prosecuted and non-prosecuted open Isapres before and during the collusive period, we show that sales efforts of the accused Isapres were reduced during the transition period toward lower-quality plans, that the profitability of the two groups of Isapres increased, and that the rate of transfers within the group of accused Isapres fell during the transition period.

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Bibliographic Info

Paper provided by Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines in its series ILADES-Georgetown University Working Papers with number inv206.

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Length: 40 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:ila:ilades:inv206

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Keywords: Tacit Collusion; Isapres; Health Insurance; Conscious Parallelism; Plus Factors.;

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Cited by:
  1. Claudio Agostini & Manuel Willington & Eduardo Saavedra, 2010. "Collusion among Helath Insures in Chile: Good, Bad and Ugly Reasons in a Split Decision," ILADES-Georgetown University Working Papers inv256, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.

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