Do Health Insurers Possess Market
Power?
For presentation at the Annual Research Meeting of
AcademyHealth on June 29, 2010
Authors
 Laurie Bates – Bryant Univesity
 James Hilliard – University of Georgia
 Rex
R SSanterre
t
– University
U i it off C
Connecticut
ti t
Introduction
 Health care reform debate – Democratic politicians,
politicians including the
President, pointed to a health insurance marketplace composed of
firms with substantial market power
p
 Both the AHA and AMA have expressed
p
similar concerns
 Economic theoryy suggests
gg
that market ppower can result in:
 Lower quantity of outputs and higher output prices
 Monopoly power
 Lower
L
quantity
i off iinputs andd llower iinput prices
i
 Monopsony power
Effects of Increased Health Insurer
Concentration: Previous Research
 Dafny (2008)
 Evidence of price discrimination against more profitable firms in some
market areas but does not question if prices rise on average (Monopoly
Power)
 Dafny, Duggan, and Ramanarayanan (2009)
 A merger-induced
i d d change
h
iin concentration
t ti bbrought
ht about
b t a 2 percentage
t
point increase in premiums (Monopoly Power), fewer physicians, and
lower physician earnings (Monopsony Power)
 Feldman and Wholey (2001)
 Lower hospital prices but greater hospital quantity (Monopoly-busting
P
Power)
)
 Bates and Santerre (2008)
 More inpatient days and outpatient visits (Monopoly-busting Power)
Summary of Previous Research
 Few in number
 Limited to special cases (single merger,
merger large employers)
 Inconclusive,
Inconclusive particularly w.
w rr. tt. monopsony power
Method
•
Use pa
panel
e data
ata set oof states oover
e tthee pe
period
o 2000
000 to 2007
00
•
2SLS to allow for the endogeneity of health insurer market concentration
•
Examine effect of health insurer market power on:
 Percent with individual and employer-sponsored
employer sponsored HI
 Premium volume
 Measures of hospital output
 Measures of input prices and quantities
Key Variables
 Right-hand
Right hand side variable: Health
Health-insurer
insurer HHI
 Computed for each state-year using data from the NAIC
 Dependent
p
variables ((15 equations)
q
)
 Percent with individually-purchased health insurance (Census)
 Percent with employer-provided health insurance (Census)
 Percent with private health insurance (Census)
 Premium Volume (NAIC)
 Outpatient visits (AHA)
 Inpatient days (AHA)
 Surgeries (AHA)
 GPs (mean salary and FTE #), nurses (salary and FTE #), surgeons (salary
and FTE #) and total (salary and FTE#) – Bureau of Labor
Instruments for HHI and Control Variables
 The HHI two years previously in the state
 The simulated change in the HHI given the announcement of large
mergers among health insurers that impacted each state during the
pprevious two years
y
 Control variables include: p
population,
p
, pper capita
p income,, hospitals
p
per capita, firms per capita, percentage of small firms (< 50
employees), percent white, percent Hispanic, percent
elderly, percent with BA+, poverty, unemployment
 Only 2002-2007
First stage results
 Dependent variable: Health
Health-Insurer
Insurer HHI
Specification
Basic
(2000-2007)
(2000
2007)
Expanded
(2002-2007)
(2002
2007)
Log of HHI lagged
two years
0.110*
(3.88)
0.201*
(3.93)
Simulated largemerger induced
change in the HHI
d
during
previous 2
years
0.0005*
(4.49)
0.0002*
(3.19)
Number of
observations
408
306
Adjusted R2
0.957
0.987
Includes control variables and state‐fixed effects. Estimated using efficient generalized least squares. F‐statistic for instruments = 51.1 and 11.83.
2SLS Results: 2002-2007
Health Insurance Output Market
Percent with
-0.002 (0.14)
ESI
Percent with -0.486 (2.43)*
IPI
P
Percent
t with
ith
-0.011
0 011 (1.12)
(1 12)
TPI
Premium
0.296 (10.9)
(10.9)*
Volume
0.959
306
0.834
306
0 964
0.964
306
0.999
306
Estimates derived by the two-state least square efficient generalized least
square procedure
procedure. (Implied price elasticity of demand for IPI = 0.57,
0 57 CBO
(2005) = 0.566.)
2SLS Results: 2002-2007
Hospital Services Input Market
Inpatient Days -0.335 (0.70)
Outpatient
0.108 (2.41)*
Visits
Surgeries
0.142 (2.44)*
0.997
0.999
306
306
0.999
306
Estimates derived by the two-state least square efficient generalized
least square
q
p
procedure.
2SLS Results: 2002-2007
Health Care Professional Input
p Market
Number of General
Practitioners
Number of
Registered Nursesa
Number of
Surgeons
g
Number of All
Employees
Salary of General
Practitioners
Salary of
Registered Nurses
Salary of Surgeons
-0.991 (3.21)*
0.974
293
0.056 (1.88)
0.999
306
-2.736 (3.32)*
0.917
262
0.022 (1.37)
0.999
306
-0.045 (0.90)
0.808
301
0.036 (1.77)
0.976
306
0.006 (0.12)
0.629
288
Salary of All
Employees
p y
-0.134 (0.62)
0.979
306
Estimates derived by the two-state least square efficient generalized
least square procedure.
Conclusion
 Evidence of monopoly power in the individually
individually-purchased
purchased health
insurance market
 Evidence of hospital monopoly-busting power
 Some evidence of monopsony power in the physician services
market
 Trade-off exists between monopoly-busting power in the hospital services
industry and monopoly power in the output market along with some
monopsony power iin th
the physicians
h i i services
i market.
kt
Policy Significance
 Health insurance exchanges
exchanges, if structured properly
properly, might help
countervail some of the health insurance monopoly power
observed in the individually-purchased
yp
health insurance market
 Antitrust laws should be more aggressively
gg
y enforced for mergers
g
involving large-sized health insurers and also those involving
large-sized hospitals.