The Welfare Consequences of Hospital Mergers

Robert Town, Douglas Wholey, Roger Feldman and Lawton R. Burns

No 12244, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In the 1990s the US hospital industry consolidated. This paper estimates the impact of the wave of hospital mergers on welfare focusing on the impact on consumer surplus for the under-65 population. For the purposes of quantifying the price impact of consolidations, hospitals are modeled as an input to the production of health insurance for the under-65 population. The estimates indicate that the aggregate magnitude of the impact of hospital mergers is modest but not trivial. In 2001, average HMO premiums are estimated to be 3.2% higher than they would have been absent any hospital merger activity during the 1990s. In 2003, we estimate that because of hospital mergers private insurance rolls declined by approximately .3 percentage points or approximately 695,000 lives with the vast majority of those who lost private insurance joining the ranks of the uninsured. Our estimates imply that hospital mergers resulted in a cumulative consumer surplus loss of over $42.2 billion between 1990 and 2001. It is estimated that all but a modest $95.4 million of the loss in consumer surplus is transferred from consumers to providers.

JEL-codes: I11 L11 L41 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-com and nep-hea
Note: EH
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Citations: View citations in EconPapers (27)

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