a1 Heinz College, and Tepper School of Business, Carnegie Mellon University, Pittsburgh, USA
a2 RAND Corporation, Pittsburgh, USA, and National Bureau of Economic Research, Cambridge, USA
a3 Heinz College, Carnegie Mellon University, Pittsburgh, USA, Centre for Market and Public Organisation, Bristol, UK, RAND Corporation, Pittsburgh, USA, and National Bureau of Economic Research, Cambridge, USA
There has been substantial consolidation among health insurers and hospitals, recently, raising questions about the effects of this consolidation on the exercise of market power. We analyze the relationship between insurer and hospital market concentration and the prices of hospital services. We use a national US dataset containing transaction prices for health care services for over 11 million privately insured Americans. Using three years of panel data, we estimate how insurer and hospital market concentration are related to hospital prices, while controlling for unobserved market effects. We find that increases in insurance market concentration are significantly associated with decreases in hospital prices, whereas increases in hospital concentration are non-significantly associated with increases in prices. A hypothetical merger between two of five equally sized insurers is estimated to decrease hospital prices by 6.7%.