Economic Impact of Insurance Consolidation and Hospital Mergers

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Consolidation in the health care providers has been increasing significantly over time. This has affected the provision of health care services to the people. It is noted that health care systems are undergoing the consolidation primarily because they are driven by the regulatory factors, technological innovations, financial pressures and the market dynamics. Other players in the market such as the banking institutions have also been affected by the consolidation wave that has forced them to seek survival tactics such as mergers and acquisitions. The rapid wave of consolidation that has taken place poses a critical question whether the ongoing changes in the healthcare providers regarding the collaborating by the providers would have on the future health care. However, it is noted that with the previous incidences of mergers and acquisitions, healthcare service provision has significantly increased. Unfortunately, the considerable costs attached to the healthcare provision after the consolidation seems to continue to rise with time. This paper analyses the impact of insurance consolidation, hospital mergers, and the economic impact this has on providers and consumers.

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Healthcare competition does not have a similarity to other market firms, which experiences high competition with an increased number of participants. This does not affect the health care providers. Notably their service provision costs remain unchanged about the number of available competitors in the same market. However, with the consolidation of the insurance companies that offer services on the health care, it would be evident that it signifies a concern to the consumers. Based on the economic theory, when two or more insurance company’s partner in any form, they are likely to increase the costs of their premiums given that the number of competitors has dropped. On this note, insurance companies in the healthcare industry have a direct impact on the policyholders. According to Trish, & Herring, (2015), the consolidation of the insurance companies would increase significantly. This has been posited that collaboration of the insurance companies would affect the provision of the services to its clients. The economic theory argues that when the number of insurance providers drops then their premium would rise due to lack of competition. In this case, it is clear that the insurance consolidation has an impact on the people since this would result in an increased healthcare provision costs. On the contrary, the insurance companies indicate a different perspective regarding the anticipated costs of the premiums. According to the insurers, an increased size of the insurance company becomes an advantage to leverage while bargaining for cheaper costs on the premiums for its clients. This thus indicate that when the insurance company increases in its size it gains a potential to forge discussion with the health care providers regarding the costs of services to the policyholders. Thus, this would affect lower charges on its customers unlike the thought based on the economic theory which posits that mergers or insurance partnering would culminate into high costs of premium due to lack of competitors.

A study focused on the analysis of impact of the number of insurance providers and its impact on the costs of the premiums indicated that actually there is an effect. In the study, which analyzed the Obama, care insurance that was introduced with an aim of providing insurance services to those who could not afford the Medicare or Medicaid insurances (Ho, & Lee, 2017). The Obama care was established by the Affordable Care Act, which targeted people who could not afford healthcare insurance or could not get it through their employer. The study indicated that when the new insurer was introduced into the market there was a drop in the cost of premiums by 2%. This clearly shows that the insurance companies would still affect the costs of premiums regardless of their claim that they would maintain the affordable costs to its clients. Thus, it is clear that competition is an eminent fact that would affect the availability of the premiums considering the costs associated.

Based on the above figure, it is evident that the number of providers would influence the cost of premiums offered. With a higher number of the services providers, the sots of the premiums would be lower.

Another study indicated similar results from the way the insurance company would affect the operations together with the health care providers (Dafny, Gruber, & Ody, 2015). It is notable that with the increases number of providers for the insurance clients would benefit. This is evident since availability of more provider would be under their competition seeking to win more customers to subscribe to their premiums. In this case, they would be sensitive to the price level for the customers. It is noted that most of the customers are people with certain challenges and would want to get the services too. However, with the high costs of premiums they might not be able to secure a reputable health service since it might be too costly for them to afford. Therefore, they would be obliged to purchase the less costly one that would be available in the market.

Insurance companies have a critical role to play in the healthcare service provision. Over recent times, it has been a concern to increase people access to healthcare, which was availed through the insurance premiums. This further went on, given it is business competition, each company that offered services they would want to make it appear the best to the consumers (Melnick, Shen, & Wu, 2011). However, the issue has been on the sensitivity of the policyholders seeking to get the best services from the insurance companies without having to incur significant costs. Some people would not even subscribe to any health cover due to the high costs associated with them. In developing nations, healthcare insurance is one of the challenges, which does not seem to offer any assistance according to the policyholders. They believe paying their regular premiums should be associated with more healthcare services. It is noted that this coupled with other challenges that come with the insurance and the state of person’s health; it becomes unaffordable for some people.

Hospital mergers have a considerable effect on the provision of health service. It is noted that healthcare providers have a significant part in the way health service would be structured and provided to the people. Public health service providers seek to offer the best services but might be faced with some issues regarding the way they avail their services to the people. Mergers and acquisitions have since been a common thing within the business field (Tenn, 2011). It has been noted to occur in companies that offer similar products and existing in a competitive market. Healthcare service providers also are involved in mergers and acquisitions with an aim to benefit from the partnership. Mergers also have the same impact on businesses as the consolidation. It is evident that businesses aimed at a certain market power and share would enter into such partnership. Mergers also profit the business organization in enjoyment of market share and profitability. When businesses merge one clear happening is that they would seek to control the impacting issues on their market operations. Hospital mergers like other types of business would benefit from the merger since they would have significant control on their market.

Hospital mergers emerge from the ?Affordable Care Act’. Insurance companies, which offer health cover to people, would consolidate and become a bigger organization capable of placing unfavorable impacts on healthcare providers (Dafny, 2009). Thus, one of the significant issues that affect how the companies would react to their competitors’advances include provision of the various services in their operations. It is noted that hospital mergers have considerable impact on the provision of health services to the people. When the hospitals merge, they would provide best and cost effective health care service. The benefit that comes to the people is that healthcare providers become integrated with other services providers. Their electronic system gets integrated so that they all provide related services to the people. Notably, different hospitals are able to get electronic records shared among all the providers. With this in regard, it is noted that the providers would ensure that there is a reduction in the level of redundancy in the provision of services to the people. On the other hand, the service provision would increase significantly, as there would be no significant variations regarding the health records of the patients.

Implementation of a standardized healthcare system has made it possible to integrate significant developments towards its output. This is when all the health providers are able to coordinate in providing an equal health care service. Studies indicate that surgeons who have been in constant operation activities would be in a position to conduct successful operation unlike one who does not have regular operations. All those concerned with the provision of the same services such as surgery would base their service provision in a standardized method that seeks to ensure quality of service provision. Furthermore, advanced healthcare would reduce the number of reported deaths due to effect from the inefficiency created by those healthcare practitioners who deal with low volumes of cases. Based on the studies, it has been determined that a low number of volume of healthcare case would be related to the increased number of reported cases of deaths on patients. As a result, the standardized healthcare would seek to intensify the level of healthcare by ensuring that the persons seeking health services be incorporated such that even after returning from their leave, would be engaged in some related work to update their practice (Tenn, 2011). Moreover, when hospitals merge, the cost of service provision seems to drop considerably. This therefore indicates that one has to be on constant touch with the established operations to be perfect. This would reduce the number of casualties reported due to operations conducted by different medical practitioners.

Both insurance consolidations and hospital mergers have significant economic effects on both providers and consumers. Consumers tend to gain when the insurance provider lowers the cost of premiums towards the health cover. This comes when the person offering the health care consolidates to become a large organization (Dafny, Duggan, & Ramanarayanan, 2012). Consequently, the organization would have a capability to seek out services with the healthcare provider that would be considerate with the policyholders. On the other hand, the mergers between different hospitals also brings about increased health care services. As a result of the increased complexity and the need to have a unified service to the patients regarding the most complicated operations, it is through mergers that specialized health service has been established. With an increased capacity of operation of the insurance company, the policyholders benefit by accessing cheaper premiums while the insurance company enjoys economically through its negotiation with the health providers to reduce certain charges for health services covered. In this way, it is evident that the prospects arising from the insurance undertakings is of significant importance.

To conclude, the insurance company does an incredible job towards the delivery of quality healthcare. The affordable healthcare to all does not seem practical since the cost implications hinder other people from accessing healthcare with the insurance companies. Merger between different hospitals benefits largely on the persons seeking healthcare. Hospitals that merge realize a significant aspect of quality that would benefit people. Because of the impact of the considerable effect of the merger between different health providers, it becomes evident that health service is improved hence would benefit the persons seeking it. On the other hand, different people would maintain the cost at a level attainable. It is therefore noted that the health care service providers would achieve a significant economic benefit when it involves potential insurers that focus on quality service provision.


Dafny, L. (2009). Estimation and identification of merger effects: An application to hospital mergers.? The Journal of Law and Economics,? 52(3), 523-550.

Dafny, L., Duggan, M., & Ramanarayanan, S. (2012). Paying a premium on your premium? Consolidation in the US health insurance industry.? The American Economic Review,? 102(2), 1161-1185.

Dafny, L., Gruber, J., & Ody, C. (2015). More insurer’s lower premiums: Evidence from initial pricing in the health insurance marketplaces.? American Journal of Health Economics.

Ho, K., & Lee, R. S. (2017). Insurer competition in health care markets.? Econometrica,? 85(2), 379-417.

Melnick, G. A., Shen, Y. C., & Wu, V. Y. (2011). The increased concentration of health plan markets can benefit consumers through lower hospital prices.? Health Affairs,? 30(9), 1728-1733.

Tenn, S. (2011). The price effects of hospital mergers: a case study of the Sutter“Summit transaction.? International Journal of the Economics of Business,? 18(1), 65-82.

Trish, E. E., & Herring, B. J. (2015). How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums?? Journal of health economics,? 42, 104-114.

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Economic Impact of Insurance Consolidation and Hospital Mergers. (2018, Dec 26). Retrieved January 31, 2023 , from

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