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American Economic Review: Vol. 100 No. 4 (September 2010)

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Are Health Insurance Markets Competitive?

Article Citation

Dafny, Leemore S. 2010. "Are Health Insurance Markets Competitive?" American Economic Review, 100(4): 1399-1431.

DOI: 10.1257/aer.100.4.1399

Abstract

To gauge the competitiveness of the group health insurance industry, I investigate whether health insurers charge higher premiums, ceteris paribus, to more profitable firms. Such "direct price discrimination" is feasible only in imperfectly competitive settings. Using a proprietary national database of health plans offered by a sample of large, multisite firms from 1998-2005, I find firms with positive profit shocks subsequently face higher premium growth, even for the same health plans. Moreover, within a given firm, those sites located in concentrated insurance markets experience the greatest premium increases. The findings suggest health care insurers are exercising market power in an increasing number of geographic markets. (JEL G22, I11, I18, L11, L25)

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Authors

Dafny, Leemore S. (Northwestern U)

JEL Classifications

G22: Insurance; Insurance Companies
I11: Analysis of Health Care Markets
I18: Health: Government Policy; Regulation; Public Health
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L25: Firm Performance: Size, Diversification, and Scope


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