Deriving Value from Mandated Information Systems Across Business Lines: Healthcare Insurance Industry's Reaction to Medical Loss Ratio
40 Pages Posted: 25 Feb 2021
Date Written: February 24, 2021
Prior research on IS mandates (MdIS) has mainly focused on the organization as a monolith in responding to mandates. However, companies often compete across multiple business lines and prior research has not fully examined how companies derive value from MdIS when competing across different business segments where they face different levels of customer bargaining power. Evidence of deriving value is discernible in endogenous price and demand changes as the company adheres to the mandate. Under the Medical Loss Ratio clause of the Patient Privacy and Affordable Care Act of 2010, health insurance companies were mandated to invest in information systems and associated quality improvement processes that improve the health of insurance buyers. Health insurance companies in the US operate as one or more of the three business lines serving the individual, small group/employer with less 500 employees, and the large group/employer with more than 500 employees in each state in the US. The standard and alternate translog profit functions for the financial data of US health insurance companies from 2011-2017 shed light on the impact of MdIS on price and demand decisions. The results show that the demand and prices charged across the individual and small group business lines increased with MdIS and did not change for large group business line, providing evidence of differential implementation to derive value from customers rather than passively implementing MdIS as the cost of doing business.
Keywords: mandates, information systems, insurance industry
JEL Classification: L11, M15, G22
Suggested Citation: Suggested Citation