Exclusive Contract in Health Insurance

Abstract

Competition between insurance companies for employees of a firm often increases the prices and reduces the availability of high-quality health plans offered to employees. An insurance company can reduce competition by signing an exclusive contract, which guarantees that the company is the only insurance provider. The study assesses whether exclusive contracts can alleviate the negative consequences of competition. Using the nation-wide survey of employers, I find that exclusive insurers charged 39-42% less for a unit of insurance quality than non-exclusive insurers. Furthermore, I find that the pattern of insurance quality dispersion is consistent with the exclusive insurers offering more high quality plans.

Keywords: health insurance, exclusive contract, subsidy, vertical restraint, signaling

JEL Classification: G22, I11, D86, L42, J33