Health insurer market concentration

What is health insurer market concentration?
Health insurer market concentration is a way of describing how many health insurers operate in a particular health insurance market. Many health insurance markets are “highly concentrated.”  This means that, frequently, one commercial health insurer dominates the market, and that the health insurer has little, if any, competition. This dominance enables the insurer to exercise significant bargaining leverage over some purchasers of health insurance coverage (e.g., small employers), which enables the insurer to charge higher premiums than would be possible in a competitive market. In this situation, the dominant health insurer possesses monopoly power. But the dominant health insurer will also typically possess great bargaining leverage over physician practices with respect to the purchase of physician services. In this case, the insurer possesses monopsony power.

Why are highly concentrated health insurance markets a problem for physicians?
Physicians sell their services to patients, commercial health insurers and public program purchasers, such as Medicaid and Medicare. Physician practices are only able to meet their financial obligations, including payroll, and to invest in and preserve the quality of the care they provide, if these practices are able to obtain fair payment for their services.

An insurer with monopsony power can nullify a physician practice’s ability to negotiate adequate reimbursement rates. This is particularly true of the small groups in which most physicians practice. The dominant insurer can literally force those practices to accept payment rates, which are lower than what is fair.

Failure to contract with the dominant insurer means that the physician will have little access to the commercial health insurance market. Even though the practice will still be able to sell its services directly to patients and to Medicaid, Medicare or other public payer programs, in many communities, individual patients do not have the resources to pay for their care entirely out-of-pocket; and the rates typically paid by public programs are insufficient to offset the loss of revenue, which would result from a significant reduction in commercial business. Accordingly, small physician practices are frequently forced to accept dominant health insurers’ payment rates on a “take it or leave it” basis.  

What is the American Medical Association doing to help physicians?
The AMA actively opposes proposed health insurer consolidations, in particular, mergers between two health insurers which threaten to create a single insurer with monopsony power. The AMA mounts such challenges through numerous avenues, including litigation, advocacy before state and federal regulatory agencies, and testimony before state and federal legislators.

A key tool in this advocacy effort is the AMA’s, “Competition in health insurance: A comprehensive study of U.S. markets.” This study, which has been published and updated annually for the past ten years, contains the most in-depth analysis of commercial health insurance market concentration and consolidation in the country. This study is a vital advocacy tool which the AMA has used to successfully block, or at least restrict, proposed health insurer consolidations in the past.  For example, in 2009, the AMA played a crucial role in compelling Highmark Inc. and Independence Blue Cross to discontinue a proposed merger in Pennsylvania. And in 2010, the AMA was instrumental in blocking a planned merger between a subsidiary of Blue Cross Blue Shield of Michigan and a Lansing, Michigan-based hospital system's health plan.

In addition to its vigorous advocacy against proposed consolidations in state and federal venues, the AMA has developed, “Competing in the Marketplace: How physicians can improve quality and increase their value in the health care market through medical practice integration, second edition.” This resource is, in part, designed to provide practice guidance to small physician practices endeavoring to occupy a stronger position in today’s marketplace—and, in so doing, potentially increase such practices’ ability to effectively deal with insurers.