Healthy Competition? Health Insurer Mergers Pre- and Post-ACA

The health insurance industry experienced substantial consolidation following the passage of the Affordable Care Act (ACA). We use event studies and cross-sectional regression models to measure the effects the ACA had on health insurer mergers and acquisitions. Generally, our analyses document positive target returns and nonnegative bidder and combined returns, which provide support for the value maximization hypothesis. We also find that medical loss ratio (MLR) rebates and Medicaid expansion both influence merger activity in the industry, while exchange participation has no significant effect. Additionally, our results indicate mergers occur for synergistic reasons in the pre-ACA period, while post-ACA mergers have broadly collusive and noncompetitive effects. However, we find that rival firms participating in the exchanges experience negative returns surrounding merger announcements, suggesting a more competitive market in the exchanges.