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The Impact of Market Share on Health Insurance Premiums

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  • Donald Alexander

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  • Jon Neill

Abstract

It is usually argued that market concentration leads to higher prices. This well-known proposition has led to concern about the level of concentration in state health-insurance markets, since the largest insurer in many states has a market share greater than 50 %. Moreover, the data compiled by the American Medical Association indicates that insurance markets have become more concentrated over the last ten years. Thus, some have suggested that health insurance premiums would decrease significantly if state markets were made more competitive. This paper explores that proposition through a computational model and an empirical analysis of the relationship between the market share of the largest firm in a state and the average health insurance premium in that state. Copyright International Atlantic Economic Society 2015

Suggested Citation

  • Donald Alexander & Jon Neill, 2015. "The Impact of Market Share on Health Insurance Premiums," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(4), pages 477-488, December.
  • Handle: RePEc:kap:atlecj:v:43:y:2015:i:4:p:477-488 DOI: 10.1007/s11293-015-9471-5
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    References listed on IDEAS

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    1. Gruber, Jonathan & Lettau, Michael, 2004. "How elastic is the firm's demand for health insurance?," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1273-1293, July.
    2. Wholey, Douglas & Feldman, Roger & Christianson, Jon B., 1995. "The effect of market structure on HMO premiums," Journal of Health Economics, Elsevier, vol. 14(1), pages 81-105, May.
    3. Laurie J. Bates & James I. Hilliard & Rexford E. Santerre, 2012. "Do Health Insurers Possess Market Power?," Southern Economic Journal, Southern Economic Association, vol. 78(4), pages 1289-1304, April.
    4. Moriya, Asako S. & Vogt, William B. & Gaynor, Martin, 2010. "Hospital prices and market structure in the hospital and insurance industries," Health Economics, Policy and Law, Cambridge University Press, vol. 5(04), pages 459-479, October.
    5. Dafny Leemore & Dranove David & Limbrock Frank & Scott Morton Fiona, 2011. "Data Impediments to Empirical Work on Health Insurance Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-24, January.
    6. Heim, Bradley T. & Lurie, Ithai Z., 2009. "Do increased premium subsidies affect how much health insurance is purchased? Evidence from the self-employed," Journal of Health Economics, Elsevier, vol. 28(6), pages 1197-1210, December.
    7. Bergson, Abram, 1973. "On Monopoly Welfare Losses," American Economic Review, American Economic Association, vol. 63(5), pages 853-870, December.
    8. Foreman, Stephen Earl & Wilson, John Anderson & Scheffler, Richard M, 1996. "Monopoly, Monopsony and Contestability in Health Insurance: A Study of Blue Cross Plans," Economic Inquiry, Western Economic Association International, vol. 34(4), pages 662-677, October.
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    More about this item

    Keywords

    Market share; Health insurance premiums; Competition; I11; L11; L13; L30;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General

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