The welfare impact of HMO mergers

This paper estimates the welfare consequences of HMO mergers using data from California's small-group market. The analysis estimates the parameters from a differentiated products demand system. The parameters are then used to simulate the effects of several HMO mergers by solving for the Nash equilibrium in prices under different ownership structures. Even small mergers in moderately concentrated markets can result in significant consumer surplus reductions. However, these welfare losses can be offset by large efficiency gains. The welfare consequences of HMO mergers turn less upon demand-side considerations than on the health plan's ability to realize efficiencies. (C) 2001 Elsevier Science B.V. All rights reserved.