Insurer Size and Negotiated Hospital Prices: Insights From the Affordable Care Act in Arkansas

This paper examines the role of insurer size in price negotiations between commercial health insurers and hospitals in the United States. The empirical analysis focuses on a dominant insurer in the Arkansas individual health insurance market that experienced a size increase due to a policy change. Under the Affordable Care Act (ACA), Arkansas expanded its Medicaid program, but unlike other expansion states, it used individual plans—a private insurance option generally not designed for Medicaid—to provide coverage to newly insured beneficiaries. This unique policy nearly doubled the insurer's individual plan enrollment after the ACA was implemented. Admission‐level regression analysis reveals that the insurer's hospital inpatient prices for individual plans decreased by 16.7% following the expansion. Consistent with the predictions from bargaining models, the findings suggest that the insurer's increased bargaining leverage due to its larger size is the primary mechanism behind the price reduction.