The (mis)alignment of health insurers' efficiency measures from different perspectives and Their (un)linkage with financial ratios and asset allocation

Abstract

This research uses Data Envelopment Analysis (DEA) models to examine the alignment of health insurers’ efficiency measures from different perspectives. It also analyzes the linkage between efficiency measures and asset allocation, as well as traditional financial ratios including medical loss ratio (MLR). The DEA results indicate that the operating efficiency and the medical services efficiency are positively (but not highly) correlated with each other, and financial ratios are not effective indicators of the efficiency of health insurers. The composite efficiency is much higher than the operating or medical services efficiency. The correlation between the composite efficiency and the operating efficiency or the medical services efficiency is moderate. Neither the operating efficiency nor the medical services efficiency is an appropriate measure of the overall efficiency of health insurers. Therefore, innovative regulatory measures, such as a combination of efficiency measures and financial ratios, should be adopted to satisfy all the stakeholders. This research provides significant insights to policymakers, regulators, the health insurance industry and consumers.