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Competitive bidding for health insurance contracts: lessons from the online HMO auctions

Author

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  • Alok Gupta

    ()

  • Stephen Parente

    ()

  • Pallab Sanyal

    ()

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. Copyright Springer Science+Business Media New York 2012

Suggested Citation

  • Alok Gupta & Stephen Parente & Pallab Sanyal, 2012. "Competitive bidding for health insurance contracts: lessons from the online HMO auctions," International Journal of Health Economics and Management, Springer, vol. 12(4), pages 303-322, December.
  • Handle: RePEc:kap:ijhcfe:v:12:y:2012:i:4:p:303-322
    DOI: 10.1007/s10754-012-9118-x
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Pham, Long & Teich, Jeffrey & Wallenius, Hannele & Wallenius, Jyrki, 2015. "Multi-attribute online reverse auctions: Recent research trends," European Journal of Operational Research, Elsevier, vol. 242(1), pages 1-9.
    2. Gregory E. Kersten, 2014. "Multiattribute Procurement Auctions: Efficiency and Social Welfare in Theory and Practice," Decision Analysis, INFORMS, vol. 11(4), pages 215-232, December.

    More about this item

    Keywords

    Electronic market design; Auctions; Health insurance procurement; HMO; I1; D44; G22;

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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