Table of Contents
The health care centers occupy an important but indistinct position within America’s healthcare system. It is a deliberate and voluntary facility for health care and ancillaries, meeting alongside a required tax system. It is also constrained by regulations designed to pursue similar non-discriminatory access objectives to those in the public system
Declining membership numbers, particularly among the young and healthy, has led to concerns about the longer term viability of the health care centers (Brisbane Institute, 2003). Some even see a crisis developing in the health care centers, fuelled by the fact that despite generous government incentives and funding, most funds are unable to perform profitably.
The paper follows up these concerns and provides an analysis of the health care marketing. It seeks to present an insight into the major factors which drive the conduct and performance of the American health care centers and looks to explore the rationale behind the actions of the organizations within. It discusses its future viability and examines steps required for their success (Benko, 2003).
Introduction to the Industry
In 1952, the National Health Act was introduced which has since governed the health care centers. They are closer to co-operatives with all members' contributions being pooled and substantially paid out as benefits (Tooker, 2003).
There are varieties of ways in which the health care organizations compete and according to the health care centers. The scope for competition and innovation in the health care centers is defined by statutory requirements for community rating, stringent conditions of registration, price control and solvency. Within this context competition revolves around service and price
This can be subdivided into two main areas
- Pricing of different products within a given fund - This is mainly due to the fact that different products offer different benefits.
- Pricing of similar products between funds - This is mainly due to factors such as demographic profile, location, services available and marketing decisions.
The health care centers has limited scope to greatly affect prices since costs are largely outside its control and funds are required to maintain minimum reserve levels according to government regulation. While certain levels of price competition has existed in the past, funds have limited scope to engage in price competition for the following reasons: (Tierman, 2003)
- Funds can easily get themselves into trouble by putting their required reserve levels in jeopardy.
- The health care centers has limited control on costs, a major part of which are influenced by factors outside their control. These costs include, among others, charges by hospitals and health providers in offering health care to the funds members, which would then be claimed.
- The lower prices may well attract a disproportionate number of customer who claim
- Finally, funds cannot illustrate on other basis of capital to finance price reductions.
In short, there are substantial downside risks to health insurance funds engaging in vigorous price rivalry.
Health care centers offer a wide range of products that provide different benefits and are targeted at specific market segments. However due to regulation there are product areas where funds are not allowed to compete, like providing catastrophic cover, limited elective surgery etc (Tooker, 2003). Funds are also constrained in the types of products they can offer because of the community rating principle. It is notable that whenever product regulations are eased, such as allowing front end deductibles, there tends to be a flurry of activity, as funds attempt to match the behavior of rivals with similar new product offerings.
But given the complexity and diversity of products available, it is very difficult for consumers to make an informed assessment of the relative merits of competing products offered by different funds. This tends to reduce competitive pressures, because in such circumstances consumers are more likely to stick with their existing funds (although they always have the option of dropping insurance in favor of Medicare).
Marketing and Distribution
According to Benko, ( 2003, 8), health care undertake extensive marketing and advertising campaigns to seduce customers, while also instituting distribution outlets that can deliver convenient service. National health care, for example, has recently advertised how its website can make claiming and gaining access to information easier and more convenient. This is an example of using advertising to not just promote products, but services.
A fund may deliberately choose to site branches at places where it believes it will recruit more customers. Others may wish to develop other systems to provide member services. Market forces determine what customers want.
Contracting with hospitals
In the recent past, health funds have increasingly been negotiating contracts with health providers and hospitals in order to provide financial security for member receiving treatment in those institutions. According to the AHIA to provide consumers with financial security, funds are under pressure to have contracts with as many hospitals as is possible. More hospitals under contract means greater coverage and minimum inconvenience to members (Tooker, 2003).
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A key element of market structure which influences the extent of competitive pressures is the height and nature of barriers to entry. There are some economic barriers which tend to give incumbents competitive advantages over new entrants, such as the importance of brand names, and member inertia. The not-for-profit status of most participants may give them a slight price advantage over new rivals who enter with for-profit status. Scale economy barriers appear not to be of significance if new funds seek to target particular niche markets rather than attempt to compete more broadly with the established majors in the health care centers.
One of the features of the private health fund industry is that it confers competitive advantages on incumbents and discriminates against new entrants. The discrimination can be classified as follows
- Registration Requirement: An organization can only operate as a private health fund if it has obtained registration for that purpose under the National Health Act. It is a general belief that the part of the Act covering the registration and operation is extremely complex and difficult to understand. This is a disincentive to enter the market, particularly for those planning to enter with for-profit status.
- Tax advantages for not-for-profit funds: Presently all but 3 of the 48 organizations operate on a not-for-profit basis and are exempt from income tax. This advantage allows them to price at levels that would only achieve below normal profits for a potential taxable entrant.
- Brand Loyalty: The selection of a health fund is a very personal choice and one that is undertaken after substantial consideration. A barrier to entry can be created for new entrants having to incur higher marketing costs and pricing disadvantages to overcome established brands and consumer loyalties.
- Low average profitability: As depicted in the diagram below, the funds overall have recorded operating losses in three of the past seven years and this is an important deterrent to entry.
The threat of potential competition from new entrants can be an important constraint on the exercise of market power even in highly concentrated markets. When the market is strongly regulated it adds an extra dimension and greatly affects the entry of new competitors.
The demand for private health insurance is quite unique and there have been marked changes in membership numbers and coverage of the population over time - reflecting abrupt changes in the regulatory and institutional regimes that embrace most aspects of the health care centers (Tierman, 2003).
The healthcare funds seek to compete on the basis of price, product, marketing, and contracting, but their behavior in some of these areas is constrained by regulations and other factors. In particular, it appears that funds are more effective at competing in marketing (and service), while product and price competition are tempered by regulatory constraints, most notably community rating and reinsurance. There are also certain features of funds' cost structures which limit their ability to engage in vigorous price rivalry.