AMA: Lack of Competition Among Healthcare Insurers

More than four out of five metropolitan areas do not have a competitive commercial health insurance market because mergers and acquisitions have allowed some insurers to increase their market share, according to a report issued by the American Medical Association.

The report studied 368 metropolitan markets and 48 states, and determined that 83 percent had minimal competition among health insurers.  In approximately 50 percent of markets, at least one insurer maintained a majority market share of 50 percent or more.  In half of the states studied, the two largest health insurers had a combined market share of 70 percent or more.  The data shows “the degree of anti-competitive market clout” that some insurers have accrued through mergers and acquisitions, which decreases competition for patients, physicians and employers, said AMA President Peter W. Carmel.  Alabama occupied the last place, followed by Alaska, Delaware and Michigan.

According to Carmel, “Our new report is intended to help regulators, lawmakers, researchers and policymakers identify markets where mergers among health insurers may cause competitive harm to patients, physicians and employers.”

This latest edition of Competition in Health Insurance: A Comprehensive Study of U.S. Markets is the most comprehensive analysis to date, reporting commercial health insurance market shares and federal concentration measures for all 48 states.  The scope of the analysis provides a comprehensive snapshot of fully-insured and self-insured enrollments for both health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

One conclusion is “A significant absence of health insurer competition exists in 83 percent of metropolitan markets studied by the AMA.  These markets rated ‘highly concentrated’, based on the newly revised Horizontal Merger Guidelines issued last year by the U.S. Department of Justice and Federal Trade Commission.

“The market power of health insurers places physicians and patients at a significant disadvantage,” Carmel said.  “When insurers dominate a market, people pay higher health insurance premiums than they should, and physicians are pressured to accept unfair contract terms and corporate policies, which undermines the physician role as patient advocate.”

Physicians are the least concentrated segment of the healthcare sector with 78 percent of office-based doctors working in practices with nine physicians or less.  The majority of those are in either solo practices or offices with between two and four physicians.

“The market power of health insurers continues to prompt anti-competitive concerns among physicians,” Carmel said.  “To help restore a competitive balance to health insurance markets, the AMA urges the federal and state agencies to prohibit harmful insurance company mergers and adopt policies that would level the playing field between small physician practices and large insurers.”

Writing in the Washington Post,  Ezra Klein points out that one of the major goals of the Patient Protection and Affordable Care Act (ACA) is to create a competitive insurance market.  “This is the bill’s first, and most important, step.  Right now, the insurance market’s version of competition is pretty brutal.  Companies compete to avoid the sickest people and sign up the healthiest people.  Offering the best coverage for the lowest cost isn’t much of a priority, because most consumers don’t know whose coverage is best, and the ones who really do know are probably sick customers who spend their days researching this stuff.

“Outlawing the bad kind of competition while enabling the good kind, which the bill does, is more than just a humanitarian measure.  It’s a cost control.  The insurance ‘exchanges’ imitate the market in which federal employees (including congressmen) purchase their health insurance. In the exchanges, insurance products have to be above a minimum level of comprehensiveness (no more insurance that doesn’t cover anything) and their benefits have to be presented in a standard, comprehensible way.  The insurers themselves can’t discriminate based on pre-existing conditions, will have to answer to regulators if they attempt to jack up premiums, and will be rated by their customers — a rating that everyone else will see when shopping for their insurance,” according to Klein.

“If all goes well, consumers will be able to log onto the exchange’s website, compare insurance plans and choose their favorite.  That means insurers will have to compete for customers in a more transparent market, where shoppers have more information, and where the relationship between price and quality is more obvious.  As any free-market conservative will tell you, that should drive prices down and quality up.  If it doesn’t, insurers will have some annoyed legislators to answer to: The bill says congressmen and their staff members need to buy their insurance from these exchanges, too.”

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