Do Health Insurers Possess Market Power?

During the 2009-2010 health care reform debates, many policy makers presumed that a lack of competition in the U.S. health insurance industry had resulted in greater levels of uninsurance. However, such a presumption has no basis in current research. This study, with a panel data set of the 50 states and the District of Columbia over the years 2001-2007, examines how health-insurer market concentration at the state level influences the percentage of the population with either individually purchased or employer-sponsored private health insurance. Two-stage least squares estimates are derived using a lagged measure of health-insurer concentration as an instrument. Results suggest that health insurers exercise market power on the seller side of the health insurance marketplace, but the restriction of output is limited to the individually purchased insurance market segment.