The welfare economics of a health plan merger |
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Authors: | Roger Feldman |
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Affiliation: | (1) Institute for Health Services Research and Department of Economics, University of Minnesota, 420 Delaware Street SE, Box 729, 55455 Minneapolis, MN |
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Abstract: | Recently, two large health maintenance organizations (HMOs) in Minneapolis merged to form a single company with over half of the total Twin Cities HMO enrollment. This paper strongly suggests that the merger will have adverse consequences for consumers. I use a model of health plan rivalry and empirical demand functions to predict that health insurance premiums in 6 Twin Cities firms will rise by as much as 19 percent after the merger. Next, I show how to calculate the loss in consumer surplus in a discrete choice model and predict that the merger will reduce surplus by 4.4% on average. Several objections to these conclusions are considered but, on the whole, the analysis raises serious concerns for public policy toward HMO mergers. |
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