Supply chain/transaction cost insights into the profitability of health insurers during 2020, the start of COVID‐19

Abstract

AbstractVarious US populations make up different health care markets/segments, and health insurers specialize in serving specific populations. US health insurers soared in profits during 2020, the first year of the Covid‐19 pandemic. The profit gains were unequal among segments. This research uses a supply chain/transaction costs economics (SC/TCE) model to find insights into the profitability differences. The SC/TCE model consists of three spheres of profitability determinants: health care characteristics, transactions costs differentials, and governance methods. Our univariate analyses combined with weighted regression results reveal that, for Medicaid, a significant increase in profitability was associated with a decrease in medical expenses, whereas the opposite is observed for the group and Medicare Advantage plans. Another finding is that transaction costs differentials led to significant increases in profitability for group and Medicare plans with opposite results for Medicaid plans. These results provide important practical implications for policymakers.