Working Paper: NBER ID: w12244
Authors: Robert Town; Douglas Wholey; Roger Feldman; Lawton R. Burns
Abstract: In the 1990s the US hospital industry consolidated. This paper estimates the impact of the wave of hospital mergers on welfare focusing on the impact on consumer surplus for the under-65 population. For the purposes of quantifying the price impact of consolidations, hospitals are modeled as an input to the production of health insurance for the under-65 population. The estimates indicate that the aggregate magnitude of the impact of hospital mergers is modest but not trivial. In 2001, average HMO premiums are estimated to be 3.2% higher than they would have been absent any hospital merger activity during the 1990s. In 2003, we estimate that because of hospital mergers private insurance rolls declined by approximately .3 percentage points or approximately 695,000 lives with the vast majority of those who lost private insurance joining the ranks of the uninsured. Our estimates imply that hospital mergers resulted in a cumulative consumer surplus loss of over $42.2 billion between 1990 and 2001. It is estimated that all but a modest $95.4 million of the loss in consumer surplus is transferred from consumers to providers.
Keywords: hospital mergers; consumer surplus; HMO premiums; health insurance
JEL Codes: I11; L11; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Hospital mergers (G34) | Increase in average HMO premiums (I13) |
| Hospital mergers (G34) | Increase in average HMO premiums in competitive markets (I11) |
| Hospital mergers (G34) | Decrease in likelihood of having private insurance (I13) |
| Decrease in likelihood of having private insurance (I13) | Increase in uninsured individuals (I13) |
| Hospital mergers (G34) | Cumulative consumer surplus loss (D11) |
| Hospital mergers (G34) | Deadweight loss due to inelastic demand for health insurance (G52) |