How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums?

Journal of Health Economics
Vol. 42
July 2015
Trish, E.E. and Herring, B.J.

The US health insurance industry is highly concentrated, and health insurance premiums are high and rising rapidly. However, while market power may enable insurers to include higher profit margins in their premiums, it may also result in stronger bargaining leverage with hospitals to negotiate lower payment rates to partially offset these higher premiums. The researchers empirically examine the relationship between employer-sponsored fully-insured health insurance premiums and the level of concentration in local insurer and hospital markets using the nationally-representative 2006–2011 KFF/HRET Employer Health Benefits Survey. Their study results show that that premiums are indeed higher for plans sold in markets with higher levels of concentration relevant to insurer transactions with employers, lower for plans in markets with higher levels of insurer concentration relevant to insurer bargaining with hospitals, and higher for plans in markets with higher levels of hospital market concentration.

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