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Competition and the cost of health care

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  • Ritesh Banerjee
  • Ethan Cohen-Cole

Abstract

In this article, we investigate pricing power in the US health care market. Using new data on state-level health care cost, as well as combining public and previously unused data on concentration among insurers and providers, we find a link between the market concentration of insurance carriers and total costs. We also present suggestive evidence that concentration in the hospital sector does not relate to total costs; however, it may lead to decreased health care access. The implications are large: we find that a 1 percentage point increase in the average market share of the largest five carriers in a market leads to a 10% increase in expenditures.

Suggested Citation

  • Ritesh Banerjee & Ethan Cohen-Cole, 2012. "Competition and the cost of health care," Applied Economics, Taylor & Francis Journals, vol. 44(10), pages 1201-1207, April.
    • Handle: RePEc:taf:applec:44:y:2012:i:10:p:1201-1207
    DOI: 10.1080/00036846.2010.539537
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    References listed on IDEAS

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    1. Vaithianathan, Rhema, 2006. "Health insurance and imperfect competition in the health care market," Journal of Health Economics, Elsevier, vol. 25(6), pages 1193-1202, November.
    2. Patricia M. Danzon & Mark V. Pauly, 2002. "Health Insurance and the Growth in Pharmaceutical Expenditures," Journal of Law and Economics, University of Chicago Press, vol. 45(S2), pages 587-613.
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