We evaluate health insurance reclassification risk in the Small Group Market before ACA community rating regulations. We use detailed claims and premiums data from a large insurance company, controlling non parametrically for selection. We find a pass-through of 11% from changes in health risk to changes in premiums, with a stronger equilibrium relationship between the two. The pricing patterns are consistent with the insurer offering “guaranteed renewability” contracts with one-sided pricing commitment. The observed pricing policy adds 55% of the consumer welfare gain from community rating relative to experience rating, with welfare gains limited because of switching across insurance companies.

While economic theories indicate that market power by downstream firms can potentially counteract market power upstream, antitrust policy is opaque as to whether to incorporate countervailing market power in merger analyses. We use detailed national claims data from the health care sector to evaluate whether countervailing insurer power does indeed limit hospitals' exercise of market power. We estimate willingness-to-pay models to evaluate hospital market power across analysis areas. We find that countervailing market power is important: a typical hospital merger would raise hospital prices 4.3% at the 25th percentile of insurer concentration but only 0.97% at the 75th percentile of insurer concentration.