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

Leemore Dafny, Mark Duggan, Subramaniam Ramanarayanan

NBER Working Paper No. 15434
Issued in October 2009, Revised in December 2011
NBER Program(s):Health Care, Industrial Organization, Public Economics

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.

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Document Object Identifier (DOI): 10.3386/w15434

Published: Leemore Dafny & Mark Duggan & Subramaniam Ramanarayanan, 2012. "Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry," American Economic Review, American Economic Association, vol. 102(2), pages 1161-85, April. citation courtesy of

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