Paying a Premium on Your Premium? Consolidation in the U.S. Health Insurance Industry

57 Pages Posted: 3 Nov 2009  

Leemore S. Dafny

Northwestern University - Department of Management & Strategy; National Bureau of Economic Research (NBER)

Mark Duggan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Subbu Ramanarayanan

University of California, Los Angeles (UCLA) - Policy Area

Date Written: October 2009

Abstract

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.

Suggested Citation

Dafny, Leemore S. and Duggan, Mark and Ramanarayanan, Subbu, Paying a Premium on Your Premium? Consolidation in the U.S. Health Insurance Industry (October 2009). NBER Working Paper No. w15434. Available at SSRN: https://ssrn.com/abstract=1498916

Leemore S. Dafny (Contact Author)

Northwestern University - Department of Management & Strategy ( email )

Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mark G. Duggan

University of Maryland - Department of Economics ( email )

3115C Tydings Hall
College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Subramaniam Ramanarayanan

University of California, Los Angeles (UCLA) - Policy Area ( email )

110 Westwood Plaza
Los Angeles, CA 90095
United States

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