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

Leemore Dafny, Mark Duggan and Subramaniam Ramanarayanan

No 15434, NBER Working Papers from National Bureau of Economic Research, Inc

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 2 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.

JEL-codes: I11 L1 L4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-hea, nep-ias and nep-mic
Date: 2009-10
Note: HC IO PE
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