ARIA 2021 Annual Meeting

Tice Sirmans, Illinois State University; Patty Born, Florida State University

In markets where companies can offer multiple products or services, the cost of production may decline as the variety of products or services increases. We test whether these economies of scope exist among U.S. health insurers, who can offer a variety of health insurance products across different lines of business. Using a sample of insurers writing commercial health insurance business over the period 2010-2018, we provide evidence that insurers providing coverage in only one health insurance line of business have significantly higher underwriting profitability. However, these monoline insurers have significantly higher expense ratios. Among the majority of insurers that provide coverage in more than one line of business, we find variations in both underwriting performance and expense ratios across insurers that participate in multiple medical services lines (e.g., providing both individual and group plans) and those whose portfolios include other health lines which are not major medical expense lines (e.g., dental, vision). Our findings have important implications for understanding how changes to health insurer product portfolios may achieve the objectives of reducing insurer expenses and lowering consumers’ cost of coverage.