The Commercial Health Insurance Industry in Transition

Abstract

Prologue:The commercial health insurance industry is a vast enterprise of which health insurance is an important part. The health insurance business, which suffered substantial underwriting losses in the early 1980s because of inflation and its inability to control health costs, was in trouble. More recently, with inflation under firmer control and with some progress on the health cost front, commercial insurers have been struggling with a new challenge: more intense competition among delivery organizations for providing medical care to patients. In this survey of the recent activities of commercial health insurers, Jon Gabel and his research colleagues at the Health Insurance Association of America (HIAA) depict the changing nature of the industry. No longer is Blue Cross and Blue Shield the major competitor. Rather, the nations employers are assuming more of the financial risk of insuring their employees against the economic consequences of illness and are demanding that insurers provide information on medical care utilization. At the same time, commercial insurers are acquiring health maintenance organizations (HMOs), developing preferred provider organizations (PPOs), and subjecting fee-for-service medicine to more stringent forms of utilization review. While insurers are plunging into the business of direct service medical care, to which most of the large carriers are heavily committed, some of the large hospital management companies have entered the insurance business. The track record of insurers and hospital management companies in these new ventures has been less than an unqualified success, according to recent press accounts. Gabel, formerly a senior economist at the National Center for Health Services Research and Health Care Technology Assessment, is associate director of research and policy development at HIAA. Karen Williams is director of this activity at HIAA. Cindyjajich-Toth, Sarah Loughran, and Kevin Haugh are researchers at the association.