Competition among Medicare Advantage plans more closely resembles local oligopolies instead of a buzzing market overflowing with options for seniors, a new study from the Commonwealth Fund shows.
The lack of competition is especially relevant as the U.S. health insurance market teeters on the precipice of further consolidation. Aetna and Anthem are undergoing federal scrutiny over their deals that would drastically enlarge their Medicare Advantage memberships.
“People are focusing on the potential for competition to be the answer to many of Medicare's challenges,” said Stuart Guterman, co-author of the report and a former vice president at the Commonwealth Fund who studied Medicare. “But I'd be careful about using the concept of competition as some kind of magic bullet to address Medicare's problems. There isn't really competition.”
Researchers at the Commonwealth Fund analyzed the 2012 enrollment data of Medicare Advantage plans in more than 2,900 counties that had at least 10 Advantage enrollees. Medicare Advantage—the private version of traditional Medicare in which commercial insurers receive risk-adjusted, capitated payments from the federal government—covers 17.6 million seniors and disabled people.
The think tank used a measure called the Herfindahl-Hirschman Index to evaluate the competitive landscape in each county. The U.S. Justice Department uses the HHI in its reviews of antitrust cases. Based on that index, roughly 97% of U.S. counties were found to be “highly concentrated” for Medicare Advantage plans, according to the study.
UnitedHealth Group and Humana dominated many high-population Medicare counties. Those for-profit companies are the two largest Advantage insurers in the country. UnitedHealth Group has almost 3.47 million Advantage members, while Humana has 3.22 million, according to a Modern Healthcare analysis of the latest Medicare data. Kaiser Foundation Health Plan and Aetna are right behind with 1.32 million and 1.27 million members, respectively.
Aetna is in the process of acquiring Humana, which would make it the largest Medicare Advantage insurer. Anthem is buying Cigna Corp., which would give Anthem 1.12 million Advantage members and would make it the fifth-largest option.
Guterman said mergers among private payers don't “imply that competition is going to increase” and in fact raise further questions about “dwindling competition in many regional markets.”
In multiple areas, such as Providence, R.I., and Ocean County, N.J., three Medicare Advantage insurers controlled the entire market. Out of the 100 largest urban counties, only one—Riverside, Calif.—had an HHI score that made it a competitive and “nonconcentrated” market for Advantage enrollees.
Tuesday's study mirrors reports from the American Medical Association, which has been vocally critical of health insurers' market power and has accused them of using their clout to suppress rates for doctors. Hospitals have also been on the offensive, saying insurance mergers would hurt healthcare competition in a “profound” way.
Economic literature and antitrust experts, however, say that hospital mergers are just as likely to lead to higher healthcare prices and debatable benefits for patients.