Abstract 

Why have employer-sponsored health insurance (ESHI) costs substantially increased in the US, and how do these rising costs impact the labor market? I highlight the role of mergers between health insurers. Using event study analysis and administrative data, I find that commuting zones with decreased insurer competition following mergers experience large increases in ESHI costs, which account for 27 percent of the total cost increase from 1999 to 2021. Firms that negotiate with insurers over premiums are most exposed to mergers, facing significant and sustained job losses. Losses are larger for less-educated, lower-income workers, and lead to increased government spending on transfer programs, especially unemployment insurance. To examine whether antitrust policy could mitigate effects, I incorporate my estimates of merger-induced cost increases into a competitive labor market model. Blocking insurer mergers that would have caused a post-merger Herfindahl-Hirschman Index increase of over 200 would limit adverse price and labor market effects.