Health plan competition: Numbers confirm tilted market

A landmark report from the AMA provides the numbers that show how individual health plans dominate many local markets.

Editorial. Dec. 17, 2001.

Physicians can estimate when a health plan has acquired too much marketplace clout by how crummy a contract it offers, take it or leave it. Lawmakers and regulators, who have the power to level the playing field, require a somewhat more comprehensive and technical analysis.

A new report from the AMA gives those policy-makers the numbers they need to begin understanding the extent of consolidation in the health insurance industry. The report uses the federal government's preferred measure of market concentration -- the Herfindahl-Hirshman Index -- to demonstrate the degree to which plans have captured dominant positions in local and state markets. It studied 40 large city markets (1 million-plus population "metropolitan statistical areas") and 19 less densely populated states, in terms of health maintenance organization and preferred provider organization enrollment.

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The overarching message is that significant marketplace concentration -- sometimes overwhelmingly so -- exists in many areas. For example, almost half the large metropolitan markets were rated as "highly concentrated" in terms of the combined HMO/PPO market, and HHI concentration scores go even higher when those product lines are examined individually. In nearly half of those highly concentrated metropolitan markets, a single insurer holds more than 40% of market share; in nearly a quarter, a single insurer has more than 50%. Eighty-four percent of the 19 state HMO/PPO markets were highly concentrated. In more than half those states, a single insurer holds more than 50% of the market; in nearly a third, a single insurer has a greater than 70% market share. More information from the report, titled "Competition in Health Insurance," can be found in an executive summary available on the AMA's Private Sector Advocacy site (http://www.ama-assn.org/go/psa).

Highly concentrated markets provide muscle for health plans to dictate terms because it is nearly impossible for physicians to avoid doing business with the dominant plan. So perhaps it's no coincidence that the recent era of consolidation -- 321 mergers and acquisitions since 1995 -- corresponds with an increase in the number of patient and physician complaints about plans. There's less reason to be responsive when holding a marketplace edge.

The AMA's findings will be put to use in upcoming months in an attempt to restore some balance in this lopsided marketplace.

The report will serve as the basis for a renewed call for antitrust relief for physicians. That would allow them to negotiate more effectively with health plans. Previous legislative attempts have failed, although last year a measure passed in the House. This time, medicine will be armed with the hard numbers to bolster its argument.

Another use is to encourage greater scrutiny of health plan consolidation by the Federal Trade Commission and the Justice Dept. While the government has aggressively eyed physician activities, it has demonstrated little interest in health plan mergers and acquisitions. The report should also encourage regulators, on both the state and federal level, to give greater scrutiny overall to the health plan actions. The report makes clear how much power plans have to force coercive contracts on physicians.

With luck, the report will also stimulate even greater examination of health care markets. Even though it is the most comprehensive survey of its kind, it does not cover every market. For example, it reports on 40 metropolitan statistical areas, but the total number of these areas is more than 300. Even in reporting enrollment, insurers hold the upper hand. They are required only to report HMO enrollment -- the smaller slice of the managed care pie -- and not figures for PPO enrollment (for the report, the AMA used what PPO figures were available, along with some estimates).

So far, the numbers have largely favored big health plans. This report puts them to work for doctors, too.

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