The American Medical Association released its annual study of health insurer market share Thursday. It found that in about 40% of the country's 388 metropolitan areas, one health insurer controlled half of the commercial insurance market. Alabama had the least competitive health insurance market. Blue Cross and Blue Shield of Alabama had at least 90% of consumer business in the individual, small-group and large-group markets, according to data confirmed by the Kaiser Family Foundation.
WellPoint had the largest nationwide presence. The AMA said the investor-owned health insurer was the dominant player in 21% of U.S. metro markets. Health Care Service Corp., the parent of five Blue Cross and Blue Shield plans, and UnitedHealth Group had market share leads in 10% and 9% of U.S. metro areas, respectively.
Market concentration spells higher prices for consumers and dictatorial bargaining with providers, the AMA argues. The larger the market share, the more negotiating leverage an entity has, which could spell higher prices. Also, hospitals and physicians argue dominant health insurers ask for steep payment discounts, or threaten to leave them out of insurers' networks.
“The dominant market power of big health insurers increases the risk of anticompetitive behavior that harms patients and physicians, and presents a significant barrier to the market success of smaller insurance rivals,” AMA President Dr. Robert Wah said in a release.
But health insurers see a very different scenario as the issue. America's Health Insurance Plans, the lobbying arm of U.S. health insurers, responded to the AMA's study by saying mergers among providers, particularly hospitals, are driving up healthcare costs.
“Not only is this study fatally flawed and debunked by leading health economists, but it distracts from the serious harm posed to patients by provider consolidation and anticompetitive mergers,” AHIP spokeswoman Clare Krusing said. “The evidence is overwhelming and clear: Provider consolidation—not concentration of health plan markets—is leading to soaring costs for consumers and employers.”
But Chip Kahn, CEO of the Federation of American Hospitals, decried the sniping between insurers and providers. “I don’t think it’s good for industry to be where we are right now, because at end of day everybody needs everybody,” he said.
Insurers and providers routinely point the finger, but high market concentration exists on both sides and in many areas, said Austin Frakt, a health economist at Boston University and founder of popular healthcare blog The Incidental Economist. Hospital consolidation could be “more troublesome” because most healthcare dollars eventually flow to the groups providing the care, he said.
Indeed, while states like Alabama, Hawaii and Michigan are predominantly covered by a small subset of insurers, provider concentration has increased apace, if not faster. One of the most prominent examples is Boston, where Partners HealthCare is trying to expand its system further but has been met with ire from government officials and even other providers. Several studies, including a 2012 brief from the Robert Wood Johnson Foundation authored by Martin Gaynor and Robert Town, also have said hospital mergers often lead to higher prices.
The most important question in the provider and insurer market dominance debate, Dranove said, is how consumers respond. Namely, how likely is it that employers and people would walk away and take their business to another provider or insurer?
“Powerful providers can raise prices without losing business,” Dranove said. “Health insurers tend to believe that their customers are more price-sensitive. And I think that's probably true.”
Follow Bob Herman on Twitter: @MHbherman