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Home / News & IndustryManaged Care Insight and Analysis
Updated: December 22, 2009
Health Plan Consolidation, State Market Dominance Resulting In Rising Health Costs

Shrinking competition among health insurance companies is a major cause of spiraling health costs, according to a report released by Health Care for America Now (HCAN), noting that commercial health insurance premiums have risen four times faster than wages and have more than doubled in the last nine years.

The report, released in the thick of the national health reform debate, charged that "extreme" health insurance industry consolidation has resulted in a market failure where a small number of large companies use their concentrated power to control premium levels, benefit packages, and provider payments in the markets they dominate.

"In the past 13 years, more than 400 corporate mergers have involved health insurers, and a small number of companies now dominate local markets," the HCAN report said. HCAN describes itself as a national grassroots campaign for quality, affordable healthcare.

Contrary to industry assertions, "these mergers have undermined market efficiency; premiums have skyrocketed, increasing more than 87 percent, on average, over the past six years," said the report. "The number of insurers has fallen by just under 20 percent since 2000. These changes were supposed to make the industry more efficient, but instead premiums have skyrocketed."

Data from the American Medical Association was used in compiling the report, HCAN said.

Among the states where insurer consolidation of market share "disproportionately disadvantages rural and lower-population states," are Hawaii, Rhode Island, Alaska, Vermont, Alabama, Maine, Montana, Wyoming, Arkansas and Iowa.

In those states the two largest health insurers control at least 80 percent of the statewide market, the report said.

In Alabama the report said, "the biggest insurer holds 89 percent of the statewide market, the highest rate in the nation for a single company."

Highly Concentrated Markets

According to the report small business especially suffers from insurers’ growing market consolidation. The report cited a nationwide survey by the Government Accountability Office which found that the median statewide market share of the largest insurer selling coverage to small employer groups increased to 47 percent in 2008 from 33 percent in 2002.

"The U.S. Justice Department considers a market ‘highly concentrated’ if one company holds more than a 42 percent share of that market, a level that is common in Virginia and more than 30 other states," the report said.

Citing various studies the report noted that in Abilene, Texas, the top insurer controls 85 percent of themarket; in Bangor, Maine, the biggest insurer controls 74 percent of the market; in Battle Creek, Michigan, the market leader holds 83 percent, and 57 percent of the Lincoln, Neb., market is served by a lone insurer.

The market control issue becomes a problem when "small, independent providers want to negotiate with multiple health plans, large insurers exert enormous pressure to stop them," said the report.

A statewide trade group for doctors in New York sued UnitedHealth Group Inc., the nation’s second-largest health insurer by enrollment, for allegedly using illegal coercion in just such a scheme to limit competition, the report noted.

David Balto, former policy director of the Federal Trade Commission and now a senior fellow at the Center for American Progress, after reviewing the report sent a letter to the Department of Justice Antitrust Division asking for a comprehensive investigation into the health insurance marketplace. The letter was co-signed by HCAN.

"Unfortunately, antitrust enforcers have been asleep at the switch for the past several years and have permitted health insurers to acquire monopolies in dozens of markets," Balto said.

Richard Kirsch, national campaign manager of HCAN, said there is nothing "more unfair than the way the current monopolistic private health insurance market controls both cost and coverage."

The report, "Premiums Soaring in Consolidated Health Insurance Market," was released by HCAN and includes state-by-state analysis of health plan market share data. The report is available online at: http://hcfan.3cdn.net/1b741c44183247e6ac_20m6i6nzc.pdf

Address: Health Care for America Now, 1825 K Street NW, Suite 400, Washington DC 20006; (202) 454-6200, http://healthcareforamericanow.org.


  This article was taken from:
The Executive Report on Managed Care

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