Over the last few years, the government has exerted more control on the insurance industry by controlling premium rates meaning the industry has become less competitive on pricing. In addition to this, through Obamacare, the government has set requirements for healthcare insurers which have significantly reduced their medical loss ratio Dinan 396.
The second factor that affects the degree of competitiveness of the industry is the number of companies operating in the industry. This has been the major reason for the hundreds of mergers in the industry since this is the major driving factor for changes in market share. The last factor is government-provided health insurance. The government provides insurance plans which create significant competition for the private companies Vanness and Wolfe 101()
The productivity measures that can be developed are the number of health insurance consumers, average cost of providing medical cover and price of health insurance premiums. The number of consumers shows the customer base and changes in demand for health insurance while the average cost of providing medical cover shows any cost savings that can be done. The last factor which is pricing shows the evolution of the industry and how it affects profits and the cost of health insurance cover for consumers.
Pricing strategy of competitors
The health care industry in general is based on value-based competition since as earlier discussed pricing does not play a major role in influencing the market share of a company. The quality of premiums provided and any improvements in client processes of claims are the major factors that influence consumer demand and lead to increased consumer satisfaction. Rivers and Glover (634)
argue that each of the consumers in the health insurance industry is not concerned on price only. They are also concerned on other factors such as quality of cover, communication, delivery of services and other factors. These are the major drivers of competition. Therefore competitors use value-based pricing where the price is determined by the value of the service being provided. A service that has more value-added services will have higher pricing and vice-verse since the price creates an image of the product or service being of higher value. This pricing strategy also enables the competitors to keep their medical loss ratio low since with more value-added services, the companies will need to payout more to the insured parties.
Suggested pricing policy
For the business chosen, the suggested pricing policy is the value-based pricing policy which is in use by the competitors. The major reason for this suggestion is that in this oligopolistic industry, price does not play a major role in influencing the demand and market share of the company. This pricing policy should also be coupled with price lining where the company should provide different levels of insurance coverage at different pricing. This will enable the company provide its consumers with a wider variety of products or services from which to choose to enable them gain market share.
Austin, D. Andrew, and Thomas L. Hungerford. The Market Structure of the Health Insurance Industry. Washington, DC: Congressional Research Service, 2009. Print.
Baughman, Reagan. "Differential Impacts of Public Health Insurance Expansions at the Local Level." International Journal of Health Care Finance and Economics 7.1 (2007): 1-22. Print.
Dinan, John. "Shaping Health Reform: State Government Influence in the Patient Protection and Affordable Care Act." Publius 41.3 (2011): 395-420. Print.
Dossche, Maarten, Freddy Heylen, and Dirk Van den Poel. "The Kinked Demand Curve and Price Rigidity: Evidence from Scanner Data." The Scandinavian Journal of Economics 112.4 (2010): 723-52. Print.
Frasco, Gregg P. "The Kinked Demand Curve When Demand Shifts." The Journal of Economic Education 24.2 (1993): 137-43. Print.
Maskin, Eric, and Jean Tirole. "A Theory of Dynamic Oligopoly, Ii: Price Competition, Kinked Demand Curves, and Edgeworth Cycles." Econometrica 56.3 (1988): 571-99. Print.
Rivers, Patrick a., and Saundra H. Glover. "Health Care Competition, Strategic Mission, and Patient Satisfaction: Research Model and Propositions." J. Health Organ Manag 22.6 (2008): 627 -- 41. Print.
The Commonwealth Fund. "Obamacare Medical Loss Ratio Saved $1.5 Billion in 2011: Report." 2012. December 11th 2012. .