Paying a Premium on Your Premium? Consolidation in the U.S. Health Insurance Industry
Leemore S. Dafny
Northwestern University - Department of Management & Strategy; National Bureau of Economic Research (NBER)
University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)
University of California, Los Angeles (UCLA) - Policy Area
NBER Working Paper No. w15434
We examine whether and to what extent consolidation in the U.S. health insurance industry is leading to higher employer-sponsored insurance premiums. We make use of a proprietary, panel dataset of employer-sponsored healthplans enrolling over 10 million Americans annually between 1998 and 2006 to explore the relationship between premium growth and changes in market concentration. We exploit the differential impact of a large national merger of two insurance firms across local markets to estimate the causal effect of concentration on market-level premiums. We estimate real premiums increased by approximately 7 percentage points (in a typical market) due to the rise in concentration during our study period. We also find evidence that consolidation facilitates the exercise of monopsonistic power vis a vis physicians, whose absolute employment and relative earnings decline in its wake.
Number of Pages in PDF File: 57
Date posted: November 3, 2009
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