An Efficiency-Based Approach to Determining Potential Cost Savings and Profit Targets for Health Insurers: the Case of Obamacare Health Insurance CO-OPs

North American Actuarial Journal, Forthcoming

39 Pages Posted: 2 Nov 2015 Last revised: 30 Jan 2017

See all articles by Charles C. Yang

Charles C. Yang

Florida Atlantic University

Min-Ming Wen

California State University, Los Angeles

Date Written: November 1, 2015

Abstract

This research analyzes the performance of the health insurance CO-OPs, examines their medical services and operating efficiency, and discusses an efficiency-based goal-oriented approach for potential cost reductions, premium changes, and government subsidies. Most CO-OPs suffer underwriting losses, so do many other insurers. The CO-OPs are not satisfactory in the medical services efficiency, and they are much less efficient compared with other insurers. Potential cost reductions are significant using various (conservative) efficiency goals. The operating efficiency generally is much better than the medical services efficiency, and a few CO-OPs are much more operating efficient than other insurers. Incorporating the potential cost reductions, many CO-OPs would hardly require any “premium changes and government subsidies” and they are even capable of paying back the federal loans. With both potential cost reductions and premium increases, more CO-OPs would not need any help from the government but survive on their own. It is important to realize that this research provides a guide for improvement potential. There may be reasons why a CO-OP cannot meet the efficiency targets.

Keywords: Obamacare CO-OPs, health insurance efficiency, cost reductions, government subsidies

JEL Classification: I13, H51, D24, L31

Suggested Citation

Yang, Charles C. and Wen, Min-Ming, An Efficiency-Based Approach to Determining Potential Cost Savings and Profit Targets for Health Insurers: the Case of Obamacare Health Insurance CO-OPs (November 1, 2015). North American Actuarial Journal, Forthcoming , Available at SSRN: https://ssrn.com/abstract=2684912 or http://dx.doi.org/10.2139/ssrn.2684912

Charles C. Yang (Contact Author)

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States

Min-Ming Wen

California State University, Los Angeles ( email )

5151 State University Dr
Los Angeles, CA 90032
United States

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