Pricing in Commercial Dental Insurance and Provider Markets

Concentrated insurance markets are associated with larger physician practices and a greater likelihood that hospitals have ownership stakes in physician groups (Brunt and Bowblis 2014; McCarthy and Huang 2017). This has led to a scenario where consolidation of providers has counteracted the potential of lower prices that can arise from health insurance consolidation (Gaynor and Town 2012; Dafny, Ho, and Lee 2017). The net result is higher prices for medical services (Austin and Baker 2015; Dunn and Shapiro 2014). Increased insurance concentration may also have ambiguous effects on premiums and prices, depending on the size of the insurer that exits a particular market and the ability of employers to constrain premiums (Ho and Lee 2017). While the impact of health insurer and provider consolidation is understood in medical care markets, the relationship between dental insurance concentration, dental provider concentration and the prices of dental services has not been closely examined. Using county level cross-sectional data, we examine these relationships.

We hypothesize that an increase in dental provider concentration is associated with higher prices for dental services while an increase in commercial dental insurance concentration is associated with lower prices for dental services. We measure payer consolidation at the county level using a Herfindahl-Hirschman Index (HHI) from the FairHealth^® dental claims database. To measure dental provider concentration, at the county level, we develop a 20-minute fixed travel time HHI (FTHHI) based on data from the 2015 American Dental Association dental office database. Dunn and Shapiro (2014) also used a FTHHI to measure physician market concentration. Measured at the county level, we use mean commercial dental insurance prices for common procedures from the 2016 Truven Commercial Dental Claims database, a convenience sample representing commercial dental insurance payers in the United States. We use an instrumental variables (IVs) approach to control for the potential endogeneity of dental payer and provider concentration. Similar to the estimation strategy employed by Dunn and Shapiro (2014), we use total county population, percentage of county residents aged 65 and older and a quadratic in the county unemployment rate as IVs. In regressions, at the county level, we control for the size of a metropolitan market, population density, dentist per square mile, real median household income, dental HPSA status, race/ethnicity, education, the uninsured rate among individuals under age 65 and census region. We consider two dependent variables: the log of total commercial insurance prices for dental services and the ratio of prices paid to submitted charges for commercial dental services.

An increase in commercial dental insurance concentration is associated with lower paid prices for periodic oral evaluations for existing patients, dental x-rays and amalgams. Relative to charges submitted to payers by dentists, actual payments to dentists are lower for periodic oral evaluations, radiographic images, x-rays, prophylaxis services for children, amalgams and tooth extractions. A composite measure of insurance prices relative to a submitted charges is also lower when dental insurance concentration increases. Dental provider concentration does not have a statistically significant impact on dental insurance prices.