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Competition and the cost of health care

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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.
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Document Type: Research Article

Affiliations: 1: Analysis Group, Inc.,111 Huntington Ave, 10th FloorBostonMA 02199, USA 2: Department of Finance, University of Maryland – College Park, Robert H. Smith School of Business, 4420 Van Munching HallCollege ParkMD 20742, USA

Publication date: 2012-04-01

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