On the financial superiority of Medicaid specialist insurers: a novel transactions cost/supply chain approach

• Published in: Geneva papers on risk and insurance. Issues and practice 2023-01, Vol.48 (1), p.32-67
• Main Authors: Baranoff, Etti G., Sager, Thomas W., Shi, Bo, Baranoff, Dalit
• Format: Article
• Language: English
• Subjects: Administrative expenses; Economics and Finance; Expenditures; Federal employees; Finance; Health care policy; Health insurance; Insurance; Insurance industry; Literature reviews; Medicaid; Medicare; Older people; Risk Management; Supply chains
• ISSN: 1018-5895; 1468-0440
• DOI: 10.1057/s41288-021-00204-y

From 2002 to 2016, U.S. health insurers specialising in Medicaid financially outperformed health insurers specialising in other populations (i.e. groups, individuals, Medicare and federal employees). For this robust finding we developed a novel methodology incorporating transactions cost economics theory with supply chain performance models. The novel approach regards the insured populations as products supplied to health insurers (‘buyers’) in a supply chain. The populations are the ‘indigent’, ‘elderly’, ‘employed’ etc. Each has different care utilisation frequencies of encounters, admissions to hospitals and days in hospital, as well as severities of expenses, contractual arrangements and transaction costs advantages. The population attributes act on return on capital (ROC) through their differential interactions with insurer (buyer) attributes. The results suggest that Medicaid specialist insurers, with their extensive involvement with indigents, have the easiest pathways toward ROC optimisation by tweaking benefits, premiums and administrative expenses, which proxy transaction cost advantages.