Multimarket Contact in Health Insurance: Evidence from Medicare Advantage

Many industries consist of large firms that compete in multiple geographic markets. Such overlap, defined as multimarket contact (MMC), may facilitate tacit collusion and soften competition. We examine the effects of MMC on health insurance prices and quality using comprehensive data on the Medicare Advantage (MA) market from 2008 through 2015. Our identification strategy exploits two plausibly exogenous changes to MMC: 1) out-of-market mergers; and 2) policy-driven changes in the benchmark rates of other markets. Our results consistently support the mutual forbearance hypothesis, where we find that prices are significantly higher and high-quality plans less pervasive as MMC increases.