Most measures of market structure appear to have little impact on coverage among workers in firms with fewer than 100 employees. Specifically, the number of insurers in the state has no significant impact, suggesting that competition — all else being equal — does not affect the price of insurance enough to drive higher rates of coverage (indeed, the coefficient on this variable in our third and preferred specification is negative). Similarly, the distribution of the market among BCBS plans, HMOs and commercial insurers had no significant impact on coverage when we also controlled for market concentration.
However, among workers in firms with fewer than 100 employees and with even greater statistical significance among workers in firms with fewer than 25 employees, greater market concentration among the largest insurers (the “top five”) drove higher rates of coverage. This result is consistent with either or both of two potential explanations: (1) insurance markets with greater concentration benefit from greater economies of scale; and/or (2) state insurance departments review the prices of large insurers more critically and, in states with greater market concentration, a larger share of the entire market is subject to more critical review. In either case, price levels may be lower in states with greater market concentration. The magnitude of the ultimate impact of market concentration on coverage was surprisingly large: all else being equal, a ten-percentage point increase in the collective market share of the largest five insurers drove a 2 to 4 percentage point increase in small employer coverage.