Are Health Insurance Markets Competitive?
AbstractAlthough the vast majority of Americans have private health insurance, researchers focus almost exclusively on public provision. Data on the private insurance sector is extremely difficult to obtain because health insurance contracts are complex, renegotiated annually, and not subject to reporting requirements. This study makes use of a privately-gathered national database of insurance contracts agreed upon by a sample of large, multisite employers between 1998 and 2005. To gauge the competitiveness of the group health insurance industry, I investigate whether health insurers charge higher premiums, ceteris paribus, to more profitable firms. I find they do, and this result is not driven by cross-sectional differences across firms or plans: firms with positive profit shocks subsequently face higher premium growth, even for the same healthplans. Moreover, this relationship is strongest in geographic markets served by a small number of insurance carriers. Further analysis suggests profits act to increase employers' switching costs, and insurers exploit this inelasticity where they have sufficient bargaining power. Given the rapid industry consolidation during the study period, these findings suggest healthcare insurers possess and exercise market power in an increasing number of geographic markets.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14572.
Date of creation: Dec 2008
Date of revision:
Note: HC IO
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Find related papers by JEL classification:
- I1 - Health, Education, and Welfare - - Health
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-14 (All new papers)
- NEP-COM-2008-12-14 (Industrial Competition)
- NEP-HEA-2008-12-14 (Health Economics)
- NEP-IAS-2008-12-14 (Insurance Economics)
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