AMA: Healthcare insurance markets are highly consolidated, reducing competition
The healthcare industry is in a period of rapid consolidation, with major mergers and acquisitions happening year to year. This consolidation is leading to high concentration levels in 73 percent of health insurance markets, according to a recent study from the American Medical Association.
High concentration in health insurance markets can harm consumers and providers of care through market power forces and limited competition among insurers.
“We find that the majority of U.S. commercial health insurance markets are highly concentrated,” the study reads. “These markets are ripe for the exercise of health insurer market power, which harms consumers and providers of care.”
In 91 percent of 380 measured metropolitan statistical areas (MSAs), one health insurer had a market share of at least 30 percent, according to the findings. Furthermore, in almost half of MSAs––46 percent––a single insurer had at least half of the market share. In 12 percent of the MSAs measured, one insurer had a market share of 70 percent or more.
Competition between health insurers tends to lead to lower healthcare premiums for consumers, previous research has shown, which is why high concentration levels are a concern. Health insurance companies have proven that they will exercise market power when given the opportunity, and this fact has led to higher scrutiny of mergers by the Department of Justice, according to the report. Mergers in the past have created market imbalances of competition, according to the study.
“Given the uncertainty in predicting the competitive effects of consolidation, some mergers that are allowed cause competitive harm,” the study found. “For example, in 2008 a merger between UnitedHealth and Sierra was allowed under the condition that UnitedHealth divest most of its Medicare Advantage business in the Las Vegas area. Nevertheless, we found other work that premiums in the commercial health insurance markets in Nevada increased in the wake of that merger.”
Nevertheless, the DOJ recently approved two significant health mergers––CVS Health’s $69 billion acquisition of health insurer Aetna, which closed on Nov. 28, and Cigna’s $67 billion merger with Express Scripts.
The study shines a light on the effects on consolidation, which has largely gone unchallenged for years, according to the AMA. Study authors hope the findings should “prompt federal and state antitrust authorities to vigorously examine competitive effects” of proposed deals between health insurers.
The study used data from the Decision Resources Group Managed Market Surveyor, which collects commercial medical enrollment data from manage care organizations.
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."