Exclusive Contracts in Health Insurance

Abstract

Competition between insurance companies often increases the prices and reduces the availability of high qualityhealth 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. This artcile shows whether exclusive contracts canalleviate the negative consequences of competition. Using the nation-wide survey of employers, I find that exclusiveinsurers charged less for a unit of insurance quality than non-exclusive insurers. Furthermore, I find that the patternof insurance quality dispersion is consistent with the exclusive insurers offering more high quality plans.