Industry Consolidation and High Prices Pose Concerns for American Health Insurance
by International Insurance News
American consumers who have noticed the dwindling number of private health insurance coverage options made available to them in recent years have perhaps had their concerns verified this week. A new report released by the American Medical Association (AMA) has found that four out of five metropolitan markets in the United States lack a truly competitive commercial marketplace for health insurance. This fresh analysis could go a long way in explaining why insurance industry performance in the US has stagnated while international markets continue to grow.
For the AMA’s 2011 edition of ‘Competition in Health Insurance: A Comprehensive Study of U.S. Markets’, the leading US trade body for physicians examined private health insurance market shares against new federal concentration measures in 368 prime metropolitan markets across 48 states. Researchers incorporated the most recent insurance enrollment figures from Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO). The dataset excluded research relating to public healthcare programs, such as Medicare and Medicaid, was excluded, but included Americans who choose to pay for private coverage on their own.
The AMA study revealed that there is a “significant absence” of competition amongst American health insurance firms in a staggering 83 percent of all domestic metropolitan markets surveyed. According to the AMA, these health insurance market environments would be classified as ‘highly concentrated’ based on the recently revised Horizontal Merger Guideline that was issued by the U.S. Department of Justice and the Federal Trade Commission last year. Under the previous version of the federal market concentration measures the results would have been even worse, with 98 percent of metropolitan markets classified as ‘highly concentrated’ due to one player holding at least a 42 percent market share. Clearly, the AMA argues, years of industry consolidation has had the effect of restricting competition and limiting consumer power, and could in fact raise anti-trust implications for several of these large companies.
Broken down more succinctly, the AMA report found that in about half of all metropolitan markets surveyed, there was at least one health insurance company with a majority commercial market share of 50 percent or more. Indeed, in 24 out of the 48 states reviewed, the two largest health insurers in their sate would have a combined market share for health insurance consumers of at least 70 percent or more. According to the data, Alabama was the state with the least competitive health insurance market and had two insurance companies controlling roughly 95 percent of the marketplace. In order, the next nine states with the least competitive health insurance markets were Alaska, Delaware, Michigan, Hawaii, Washington DC, Nebraska, North Carolina, Indiana and Maine. Oregon’s health insurance market meanwhile was the most competitive in the US, with the top two insurers only controlling a 39 percent share combined.
So competition in the US health insurance industry is deteriorating as more commercial markets across the country becoming dominated by one or two insurance groups. In 2009 AMA found that just 18 of the 42 states it polled had two insurers with a combined market share of 70 percent or more. In markets that are dominated by only a few health insurers, company revenues have been growing faster than the average health inflation index. Insurers have been able to maximize the rates they charge employers and families in these markets and ultimately create real cost barriers to healthcare. The authors of this year’s report believe that the monopolistic tendencies of large health insurers have been largely ignored and that this would continue to restrict marketplace competition without more critical oversight. “New data presented by the AMA demonstrates the degree of anti-competitive market clout that some health insurers have gained through mergers and acquisitions,” said AMA President Dr. Peter Carmel, in a news statement, adding that “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.”
The concentration levels now present in US health insurance markets have been largely the result of heightened consolidation efforts taking place within the American health insurance industry. Indeed, according to some reports there have been over 400 mergers involving health insurance companies over the past fourteen years in the United States. While merger and acquisition activity can yield improved industry performance, it can also lead to the exercise of market power and this in turn can negatively affect both healthcare providers and consumers. The AMA believes that healthy competition in the marketplace is a key way of keeping costs and premiums down. The numbers present in their report, meanwhile, should raise anti-trust concerns for the US health insurance industry.
It cannot be argued that Americans are paying more for health insurance and healthcare today than ever before. A report released by the Kaiser Family Foundation in September showed that the average annual premium for family coverage through employer-sponsored insurance hit US$15,073 in 2011, a 9 percent rise over the previous year. Kaiser noted that the overall cost of family coverage in the US has doubled in the past decade; health insurance premiums in 2001 averaged out at US$7,061 per year. The steep hike in insurance rates has come in conjunction with only a 34 percent gain in real wages over the same period, leaving many to absorb healthcare costs through debt or having to avoid vital medical treatment altogether. In a recession with high unemployment rates, many employers find themselves in a position where they no longer need to provide cost-effective health benefits to attract or retain employees. Employers have also attempted to shift rising healthcare costs to workers, making insurance less affordable. According to the recent US Census Bureau data, 14.3 million Americans, or 15 percent of all full-time employees, were uninsured last year.
It is unclear how the Obama Administration’s Affordable Care Act will impact health insurance costs, coverage and competition concerns at present, as many important facets of the healthcare law are still being debated on a political level and in the courts. Under the Affordable Care Act nearly all American citizens would have to carry health insurance in 2014 or else face a fine. The federal law requires that the general public have insurance policies which meet certain minimum benchmarks, more sufficient than basic catastrophic coverage and preventive services. This individual mandate is currently facing legal challenges in 26 states which contend that the United States government cannot compel its citizens to engage in such commerce. Several federal courts have already ruled that the individual mandate violates the US Constitution, and the US Supreme Court is ultimately expected to decide upon the controversial issue soon.
Cost and competition concerns have not been as apparent for companies focused on providing international insurance policies. While American health insurance policies face a bevy of restrictions based upon the insurer and available health network, including limited choice of medical facilities, doctors, and treatment options, many international health insurance plans feature two areas of coverage, worldwide and worldwide excluding the US, to avoid the skyrocketing healthcare costs in America. In general, these international health and medical insurance plans will offer access to any hospital or healthcare professional available, no age/pre-existing condition refusals with guaranteed renewals, and even provide emergency cover in the United States if certain events come to pass. Indeed because the market in the international health insurance industry has remained more open, health inflation is kept down and plans have become more competitive when compared to what has happened with traditional local American plans. US-based insurers have taken note of the demand for this type of product and are expanding into international markets themselves through merger and acquisition activity in emerging international insurance markets.
FULL TEXT: ‘Competition in Health Insurance: A Comprehensive Study of U.S. Markets’
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News Release from American Medical Association, Oct. 25, 2011 --
A new analysis from the American Medical Association (AMA) notes that four out of five metropolitan areas in the United States lack a competitive commercial health insurance market.
"New data presented by the AMA demonstrates the degree of anti-competitive market clout that some health insurers have gained through mergers and acquisitions," said AMA President Peter W. Carmel, M.D. "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."
The 2011 edition of Competition in Health Insurance: A Comprehensive Study of U.S. Markets is the most comprehensive analysis of its kind, reporting commercial health insurance market shares and federal concentration measures for 368 metropolitan markets and 48 states. The scope of the analysis provides a complete picture of fully-insured and self-insured enrollments for both health maintenance organizations and preferred provider organizations.
The AMA's latest findings regarding competition in the health insurance industry include:
- 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*.
- In about half of metropolitan markets, at least one health insurer had a commercial market share of 50 percent or more.
- In 24 of the 48 states reported in the new AMA study, the two largest health insurers had a combined commercial market share of 70 percent or more.
- The 10 states with the least competitive commercial health insurance markets, are: 1. Alabama, 2. Alaska, 3. Delaware, 4. Michigan, 5. Hawaii, 6. District of Columbia, 7. Nebraska, 8. North Carolina, 9. Indiana and 10. Maine.
Competition in Health Insurance: A Comprehensive Study of U.S. Markets is free to AMA members. Non-members can purchase the study for $150. To order the study, please visit the AMA Bookstore online, or call (800) 621-8335 and mention item number OP427111.
* Footnote: Under the old version of the federal market concentration measures, 98 percent of metropolitan markets would have been classified as "highly concentrated."