Working Paper: NBER ID: w15434
Authors: Leemore Dafny; Mark Duggan; Subramaniam Ramanarayanan
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.
Keywords: health insurance; market concentration; premiums; Aetna-Prudential merger
JEL Codes: I11; L1; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Consolidation in the health insurance industry (I13) | Increase in employer-sponsored insurance premiums (J32) |
| Increase in local market HHI (L19) | Increase in premiums (G52) |
| Consolidation (G34) | Monopsonistic power over healthcare providers (I11) |
| Monopsonistic power over healthcare providers (I11) | Lower earnings for physicians (J31) |
| Monopsonistic power over healthcare providers (I11) | Increase in employment and earnings for nurses (J39) |