PRODUCT DIVERSIFICATION IN HEALTH INSURANCE WITH COMPREHENSIVE COVERAGE BENEFITS U.S. HEALTH INSURERS

This paper studies the relationship between product diversification and financial performance in U.S. health insurers during 2005 – 2014. We focus on diversification among different types of comprehensive coverage – termed related diversification. We use a modified Herfindahl-Hirschman Index (HHI) as a proxy for product diversification and measure financial performance by both return on assets and return on capital. We find a robust positive relationship between product diversification and performance. Moreover, the positive relationship still holds when the performance measures are adjusted for volatility. These findings support the theoretical foundation of economies of scope and risk-reduction, as adapted to the U.S. health insurance industry. We also develop two empirical proxies for the underwriting and asset investment risk taking of health insurers. For health insurers, the relationship between performance and risk-taking in product and asset management is similar to other types of insurers. A noteworthy finding is that the positive relationship between product diversification and performance is stronger during the financial crisis years than in the recent healthcare reform era. This suggests that diversification as a risk reduction strategy may be less effective when reform changes the healthcare environment

What US Health Insurers\u27 Data Show for ACA Repealers

The healthcare reform brought about as a result of the Affordable Care Act (ACA) in 2010 marked the start of a new era for the US healthcare industry, with the main objective being to extend insurance coverage to the previously uninsured population and thus provide coverage for all Americans. In consideration of calls for possible repeal or revision of the ACA, we depict the large-scale structure of the US healthcare system before and after the ACA by visual models, and present dynamic trends in healthcare utilization based on health insurers’ own data. The exhibits of the healthcare system portray the health insurance industry as a key player with a dual role as both a financial intermediary and the manager of care before and after the ACA (albeit with many limitations and requirements since 2010). Given their key role, the annual financial statements of all health insurers are a rich source of comprehensive data for developing utilization trends for 5 covered subpopulations—employer-provided group insurance (not for self-insurance), individual coverage, Medicaid, Medicare, and federal group coverage—for 3 utilization factors: encounters with providers, admissions to hospitals, and duration of hospitalization. The data reveal that some of the trends began before ACA enactment, likely as consequences of other factors, such as the 2008 financial crisis, which left major unemployment in its wake. One resulting prominent trend is the continuous reduction in employer-provided group health insurance despite a reversal in unemployment; provisions of the ACA are considered to play a part in this reduction. Since 2008, we have also seen a dramatic increase in member numbers in, and utilization of, the Medicaid program. These trends help fill out a picture of the developing status of healthcare plans’ membership and utilization, which will inform any discussion of changes in, or repeal of, the ACA

Product Diversification in Health Insurance with Comprehensive Coverage Benefits U.S. Health Insurers

This paper studies the relationship between product diversification and financial performance in U.S. health insurers during 2005 – 2014. We focus on diversification among different types of comprehensive coverage – termed related diversification. We use a modified Herfindahl-Hirschman Index (HHI) as a proxy for product diversification and measure financial performance by both return on assets and return on capital. We find a robust positive relationship between product diversification and performance. Moreover, the positive relationship still holds when the performance measures are adjusted for volatility. These findings support the theoretical foundation of economies of scope and risk-reduction, as adapted to the U.S. health insurance industry. We also develop two empirical proxies for the underwriting and asset investment risk taking of health insurers. For health insurers, the relationship between performance and risk-taking in product and asset management is similar to other types of insurers. A noteworthy finding is that the positive relationship between product diversification and performance is stronger during the financial crisis years than in the recent healthcare reform era. This suggests that diversification as a risk reduction strategy may be less effective when reform changes the healthcare environment