The Impact of Market Power and Economies of Scale on Large Group Health Insurer Profitability

Document Type

Peer-Reviewed Article

Publication Date

Fall 2020


Following the passage of the Affordable Care Act in 2010, financial reports by commercial health insurers include more detailed information on a Supplemental Health Care Exhibit. Using these data, we analyze the financial performance of all insurers offering large group health insurance aggregated to the group level from 2010 to 2018. The group-level underwriting gains of the largest three insurers were significantly higher and significantly less variable than those of all other insurers. In a multivariate analysis using ordinary least squares, we compare per-member premiums, claims, and operating expenses of the three largest insurers to those of all others. We find no statistically significant difference in premiums or claims per member. However, we find that the largest three insurers have significantly lower general and administrative expenses than all other large group insurers. While our findings indicate that the top three insurers have achieved economies of scale, their cost savings result in higher insurer profits rather than lower consumer premiums. The importance of market share as a driver for insurer-level profitability may lead to a future decline in competition, an increase in market concentration, or both if underperforming insurers with lower market share begin to exit the market.