Dropped out or pushed out? Insurance market exit and provider market power in Medicare Advantage

This paper explores how provider and insurer market power affect which markets an insurer chooses to operate in. A 2011 policy change required that certain private insurance plans in Medicare form provider networks de novo; in response, insurers cancelled two-thirds of the affected plans. Using detailed data on pre-policy provider and insurer market structure, I compare markets where insurers built networks to those they exited. Overall, insurers in the most concentrated hospital and physician markets were 9 and 13 percentage points more likely to exit, respectively, than those in the least concentrated markets. Conversely, insurers with more market power were less likely to exit than those with less, and an insurer's market power had the largest effect on exit in concentrated hospital markets. These findings suggest that concentrated provider markets contribute to insurer exit and that insurers with less market power have more difficulty surviving in concentrated provider markets.