American Medical Association: Less competition in health insurance markets in half of U.S. states

Health insurance benefits form
Overall, 73% of metropolitan areas had a significant absence of health insurer competition and were considered “highly concentrated” based on federal guidelines used to assess market competition. (Getty/michaelquirk)

(Editor's note: This article was updated to include comments from America’s Health Insurance Plans.)

Many patients had fewer choices last year as competition levels dropped in health insurance markets in half of the U.S. states, according to a new report.

The report (PDF) released by the American Medical Association (AMA) found that half of all states had commercial health insurance markets that were less competitive in 2017 than in the previous year.

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In 91% of 380 metropolitan areas studied in 2017, at least one insurer had a commercial market share of 30% or more of the market, the report found. In 46% of metropolitan areas, a single insurer’s market share was at least 50%.

Overall, 73% of metropolitan areas had a significant absence of health insurer competition and were considered “highly concentrated” based on federal guidelines used to assess market competition. Highly concentrated levels are largely the result of consolidation and can make them ripe for payers to exercise market power in a way that can negatively impact patients and healthcare providers, the report said.

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“The AMA continues to urge that competition, not consolidation, is the right prescription for health insurance markets,” AMA President Barbara L. McAneny, M.D., said in the announcement.

“The slide toward insurance monopolies has created a market imbalance that disadvantages patients and favors powerful health insurers. The prospect of future mergers involving health insurance companies should raise serious antitrust concerns. There is already too little competition among insurers, to the detriment of patients. Networks are already too narrow, and premiums are already too high,” McAneny said.

America’s Health Insurance Plans (AHIP) responded to the report saying individuals do have many choices when it comes to health insurance. “We support competition and choice for consumers—and in fact if you look at consumer choices in the employer, MA [Medicare Advantage], and even individual market this year, there are lots of choices. The role of insurance providers is to negotiate lower prices for consumers. We also sell our product based on a clear value proposition—people buy when we have a great product that covers the services and drugs that people need at a price they can afford. That buying equation and value proposition doesn’t change—and that’s what all plans are incented to deliver," the group said in a statement to Fierce Healthcare.

The AMA had opposed two major insurer consolidations—proposed mergers of Aetna-Humana and Anthem-Cigna, which were blocked by federal judges.

But that hasn't stopped insurance companies from pursuing other mergers. Aetna Wednesday officially became part of CVS Health. The two companies closed a $69 billion deal, finishing off a vertical merger that makes one of the largest healthcare giants even larger.

The AMA, which continues to express skepticism over that merger, urged state and federal agencies to make sure the post-merger environment doesn't get out of hand. It urged the Department of Justice and state antitrust enforcers to monitor the post-merger effects of the Aetna acquisition by CVS Health on highly concentrated markets in pharmaceutical benefit management services, health insurance, retail pharmacy and specialty pharmacy.

And reports are that Humana is in discussions with Walgreens to broaden an existing partnership and take equity stakes in one another.

The AMA’s latest snapshot of competition in the health insurance industry provided a state-by-state breakdown. It showed the following:

  • The 10 states that experienced the largest decrease in competition levels between 2016 and 2017 were North Dakota, Alaska, Louisiana, Indiana, Utah, North Carolina, Arkansas, Hawaii, Alabama and Mississippi.
  • The 10 states with the least competitive commercial health insurance markets were Alabama, Hawaii, Louisiana, Delaware, South Carolina, Michigan, Alaska, Kentucky, Vermont and North Carolina. The report also looked at the states with least competitive HMOPPO or POS markets.

Anthem continued to dominate in 2017 and was the largest insurer in more metropolitan markets than any other insurer. It was the largest health insurer by market share in 75 out of 380 metropolitan areas that the physician group examined. Health Care Service Corp. was second with a market share lead in 40 out of 380 metropolitan areas, while UnitedHealth Group led in 27 areas.

In the 17th edition of the AMA’s Competition in Health Insurance: A Comprehensive Study of U.S. Markets, the report noted that “the majority of health insurance markets in the United States are highly concentrated. Coupled with evidence on their anticompetitive behavior, this strongly suggests that health insurers are exercising market power in many parts of the country and, in turn, causing competitive harm to consumers and providers of care.”

The AMA said its study is intended to help policymakers and regulators identify markets where mergers may harm patients and the physicians who care for them. The study also helps identify health insurance markets where antitrust enforcers should monitor for post-merger effects.

The AMA’s concerns come from studies of past merger deals that have shown that less competition drives premiums upward. Also, insurers with greater market power tend to make payments to healthcare providers below competitive levels and reduce the quantity of coverage to levels below those produced in a competitive market.

AHIP disputed the connection with higher premiums. "The report makes projections about what market competition could do to premiums—but even though it looks at several years’ worth of data it doesn’t demonstrate any existing connection. The greater factor in premiums and out of pocket costs going up is provider consolidation, which isn’t just about the hospital megamergers but also how hospitals are buying up smaller doctor shops, which do not hit any threshold requiring regulatory oversight," the group said.

In fact, it’s not only insurers that have looked to consolidate—providers, including hospital systems that have bought smaller physician practices, are also part of healthcare’s "merger mania." The mergers have led to significantly consolidated provider markets, which could also have some major downsides for patients, according to an August report from the Commonwealth Fund.

It found stratified provider and payer consolidation across metropolitan statistical areas and found that about 90% of those areas are either “highly concentrated” or “super concentrated” provider markets. 

RELATED: Healthcare mergers post a patient safety risk, study finds 

Provider consolidation was higher than insurer consolidation in 58.4% of metro areas, while payers outpaced providers in just 5.8%. Markets where providers and payers are both highly concentrated can allow payers greater negotiating leverage to lower prices, the researchers said.

"Large, consolidated hospital systems have stronger market power to drive up prices, giving them the ability to negotiate prices that are significantly higher than what Medicare pays for the same exact services. The result is higher health costs and increased premiums. Competition in the hospital market is essential to eliminating price variation and protecting patients from soaring price increases," AHIP said.