Health insurance competition: effects on premiums, hospital rates, and welfare

In evaluating health insurance mergers recently proposed in the U.S., regulators have grappled with the costs and benefits of reduced insurer competition. Our study examines the direct and indirect effects that a reduction in the number of insurers has on premiums, provider reimbursement rates, and consumer welfare. Using detailed health and enrollment data and focusing on a part of the commercial health care market, we examine whether consumers are typically harmed when an insurer is removed from the market. Absent premium setting constraints, we find that premiums typically rise, and consumers are generally harmed as they suffer from having fewer options. However, we also find that the reimbursement rates negotiated by hospitals need not always increase, and in many cases, can actually fall.

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