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¶ … Obamacare health care premiums depends on location by Maureen Groppe (2013) narrates the story of how insurance premiums vary by different locations in the U.S. While many forms of price discrimination are disallowed under the Affordable Care Act, discrimination by zip code is still allowed. Insurance companies therefore discriminate based on differences in local health rates, and in services rendered in that community by health care providers. This information has just recently been made public through the information exchanges set up as the result of the ACA. There are other different facts presented, gleaned from the exchanges, for example average plan rates depending on the level of competition. Lack of competition was cited as a major contributor for the higher cost of rural plans. Competition is known to have a significant impact on pricing strategy, and the exchanges are actually designed to increase competition (Griffin, 2013).
There are a lot of different business principles that come into play...
The main subject of the article is the information and insurance exchanges set up under the ACA. These are intended to foster competition in the insurance industry. The article was written because for the first time, people can easily compare different insurance plans in their area. This increased buyer information gives buyers greater purchasing power. The article notes that for many people, increases in health premiums are the result of the law, which mandates plans have certain characteristics. The floor quality level of plans rules out many plans that people had before. However, the insurance exchanges will, over time, foster competition. Insurance companies will be forced to win business by offering better value in terms of prices and rates. In a perfectly competitive market, where buyers have strong information, there are no profits possible. So, over time, insurance rates will drop and features will improve, unless there is collusion (which is illegal) among industry players. For business, the creation of such a marketplace is bound to reduce margins, especially on the low-end plans where consumers are likely going to be the most price-sensitive. The article also notes that there are regions where one insurance carrier has a dominant market share, allowing it to negotiate better prices from suppliers and at the same time have better bargaining power with buyers. The insurance exchange is supposed to change that by introducing market principles to the health care market.
The article in general seems…
References
Griffin, D. (2013). The effect of competition on pricing strategy. Houston Chronicle. Retrieve November 12, 2013 from http://smallbusiness.chron.com/effect-competition-pricing-strategy-1109.html
Groppe, M. (2013). Cost of Obamacare health care premiums depends on location. Indianapolis Star. Retrieved November 12, 2013 from http://www.indystar.com/article/20131109/NEWS05/311090043/Cost-Obamacare-health-care-premiums-depends-location-nclick_check=1
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