The Increased Concentration of Health Plan Markets Can Benefit Consumers Through Lower Hospital Prices

Published in: Health Affairs, v. 30, no. 9, Sep. 2011, p. 1728-1732

Posted on RAND.org on September 01, 2011

by Glenn Melnick, Yu-Chu Shen, Vivian Y. Wu

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The long-term trend of consolidation among US health plans has raised providers' concerns that the concentration of health plan markets can depress their prices. Although our study confirmed that, it also revealed a more complex picture. First, we found that 64 percent of hospitals operate in markets where health plans are not very concentrated, and only 7 percent are in markets that are dominated by a few health plans. Second, we found that in most markets, hospital market concentration exceeds health plan concentration. Third, our study confirmed earlier studies showing that greater hospital market concentration leads to higher hospital prices. Fourth, we found that hospital prices in the most concentrated health plan markets are approximately 12 percent lower than in more competitive health plan markets. Overall, our results show that more concentrated health plan markets can counteract the price-increasing effects of concentrated hospital markets, and that—contrary to conventional wisdom—increased health plan concentration benefits consumers through lower hospital prices as long as health plan markets remain competitive. Our findings also suggest that consumers would benefit from policies that maintained competition in hospital markets or that would restore competition to hospital markets that are uncompetitive.

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