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.

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.

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