Like most industries in today’s economy, the healthcare industry is looking for ways to cut costs, and in the case of healthcare insurance, businesses are employing reverse auctions to help get a better price. Amy Gallagher in her article Smart Benefits: Reverse Auctions Bring Down Health Benefit Costs, she discusses that business are holding reverse auctions to get competing insurance providers to offer lower prices for insurance.
Business will use this option to find insurance by listing exactly what it needs for insurance, how many people are projected to be insured and information like this and the auction is opened for a number of days. Insurance companies then bid in an open online setting where everyone sees everyone else’s bids. This transparency helps drive down the eventual end price of the insurance package that the business will eventually take.
It is easy to see why businesses would benefit from this model: they get potentially more insurance for less if the company was to buy insurance in traditional means. In the case of the insurance companies, it is a bit more difficult to see how these companies benefit from this model. Insurance companies would want to participate in this model because businesses provide long term profits as an entire company vastly outlives any individual looking for insurance, so potentially low balling a bid has the potential for long run profits. Also, because the business lists exactly what it is looking for in its insurance packages, the insurance company is able to build a more tailored insurance package with payment structures that covers exactly what is needed. There is a high potential for nothing superfluous, thus cost increasing, to be added.
There are cons to be considered with this method as a business may look only at the base price of a bid and not look at things like the doctor network the insurance company has or does not have any incentive programs an insurance company may have, i.e. discounts for being a gym member. Insurance companies also run the risk of offering too much for too little a price point in an overzealous bid for a large company. There is a small potential for insurance companies to also collude, but due to the transparent nature of the bidding process this is unlikely.
It is interesting to see different methods used to cut costs in the healthcare industry. The reverse auction looks to provide a key way to help bring down insurance costs and provide better tailored services for the needs of individual businesses.