Competition and the cost of health care

Ritesh Banerjee and Ethan Cohen-Cole

Applied Economics, 2012, vol. 44, issue 10, 1201-1207

Abstract: In this article, we investigate pricing power in the US health care market. Using new data on state-level health care cost, as well as combining public and previously unused data on concentration among insurers and providers, we find a link between the market concentration of insurance carriers and total costs. We also present suggestive evidence that concentration in the hospital sector does not relate to total costs; however, it may lead to decreased health care access. The implications are large: we find that a 1 percentage point increase in the average market share of the largest five carriers in a market leads to a 10% increase in expenditures.

Date: 2012
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DOI: 10.1080/00036846.2010.539537

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