We examine whether and to what extent consolidation in the U.S. health insurance industry is leading to higher employer-sponsored insurance premiums. We make use of a proprietary, panel dataset of employer-sponsored healthplans enrolling over 10 million Americans annually between 1998 and 2006 to explore the relationship between premium growth and changes in market concentration. We exploit the differential impact of a large national merger of two insurance firms across local markets to estimate the causal effect of concentration on market-level premiums. We estimate real premiums increased by 2 percentage points (in a typical market) due to the rise in concentration during our study period. We also find evidence that consolidation facilitates the exercise of monopsonistic power vis a vis physicians, whose absolute employment and relative earnings decline in its wake.

The paper is here. So think of what might happen to doctor pay and employment if there were only a single insurer? I’d like to see it.

I am usually loathe to answer these sorts of questions, because I don’t want anyone to mistake an answer for something that would be easy to achieve – or even morally right. That said, if I had a gun to my head I would answer:

The latter is the easier, far easier question – and perhaps the most unpalatable for many people.   ALLOW THE FREE MOVEMENT OF WORKERS AND CONSUMERS ACROSS ANY NATIONAL BORDER.   For example, if you take the average Namibian and dropped them into even the poorest part of America – their quality of life and standard of living would improve SUBSTANTIALLY (like over 20 times).  For the US, I would try to focus on a policy that made business and government transparent, and got to the core of all of the special priveleges that pervade our economy (e.g. occupational licensing, public sector unions, etc.). Absent me coming up with an answer to that, my one proposal would be to eliminate the virtual public school monopoly and the traditional method of funding public schools – for obvious reasons, I hope.  

I gave that answer before I saw this. And also before I saw this. Economists, especially me, always warn about the broken window fallacy to explain why storms and natural disasters cannot be good for an economy. And despite the fact that the clean slate for schools is working, I hope people understand that even that good outcome is nothing in lieu of those hundreds of individuals who lost their lives to the storm.