Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry

TLDR

The study investigates whether consolidation in the US health insurance industry has driven higher employer-sponsored insurance premiums. Using a difference-in-differences design that exploits the national merger of two insurers, the authors identify the causal impact of market concentration on premiums across local markets. They find that by 2007, premiums in average markets were about seven percentage points higher due to concentration increases from 1998–2006, and that consolidation also enabled monopsonistic power over physicians, reducing their employment and earnings relative to other healthcare workers. JEL classification: G22, I13.

Abstract

We examine whether and to what extent consolidation in the US health insurance industry has contributed to higher employer-sponsored insurance premiums. We exploit the differential impact across local markets of a national merger of two insurers to identify the causal effect of concentration on premiums. Using data for large groups, we estimate premiums in average markets were approximately seven percentage points higher by 2007 due to increases in local concentration from 1998–2006. We also find evidence consolidation facilitates the exercise of monopsonistic power vis-à-vis physicians, leading to reductions in their absolute employment and earnings relative to other healthcare workers. JEL: G22, I13