57 Pages Posted: 3 Nov 2009
Date Written: October 2009
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: 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