Efficiency Analysis of Health Insurers’ Scale of Operations and Group Affiliation with a Perspective Toward Health Insurers’ Mergers and Acquisitions Effects

This research uses an indirect methodology to examine the effects of health insurance mergers and acquisitions by analyzing the impact of insurers’ scale of operations and group affiliation status on benefits, costs, and efficiency from the perspective of various stakeholders. The analysis can provide insights related to federal and state governments’ antitrust scrutiny and regulations, and can inform the public debate over mergers and acquisitions in the health insurance industry. We find that stakeholders in this process (consumers, regulators, health care providers, society at large) are inconsistent regarding the assessment of what constitutes efficiency with respect to scale of operations and group affiliation status, depending upon their viewpoint (choice) of most appropriate inputs and outputs to the health care market dynamics. In this study, big-sized insurers (those in the top 20% of insurers by member month enrollment) and small groups (those affiliated with a group with fewer than 10 member insurers) are the most efficient from the societal input–output perspective, From a composite perspective that combines the input–output choices relevant from the societal perspective and from the insurers’ perspective, big-sized insurers and big groups (those affiliated with a group with 10 or more member insurers) are found to be the most efficient. Additionally, we find most insurers are scale inefficient. The analysis of scale (dis)economies provides some guidelines regarding the appropriate scale of operations for the scale efficiency, and informs discussion of mergers and acquisitions among health insurers.