Health plan market dominance: FTC should rein in overbearing plans

With such influence greater than ever, federal regulators need to ensure that insurers don't abuse their power.

Editorial. March 3, 2003.

Just about all health care, like politics, is local. And for physicians in much of the country, the dominance by health plans is the equivalent of being the opposition to a big-city mayoral machine.

With the recent release of its report "Competition in Health Insurance: A Comprehensive Study of U.S. Markets," the AMA presents evidence that health plan dominance in local markets is greater than ever. For this reason, in late January the AMA renewed its call for the Federal Trade Commission to begin investigating HMOs and other health plans -- and not just physicians, the typical target -- for health care antitrust violations.

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The U.S. Dept. of Justice, which also handles antitrust matters, last fall said it would make a priority out of scrutinizing insurance mergers, and of evaluating unilateral or coordinated insurer conduct. But it has taken no action yet against any plan. It needs to step up its efforts.

Even more glaring, is that despite more than 350 health plan mergers between 1995 and 2001, the FTC has never taken action to block a merger or cite a plan for anti-competitive behavior. This, even though the market power of health plans in 61 out of 70 metropolitan areas examined in the AMA's study would be considered "highly concentrated" using Dept. of Justice standards.

In most cases, that means the top two health plans having a 60% or greater share of the HMO/PPO market -- as high as 91% in Pensacola, Fla., and 90% in Dayton/Springfield, Ohio. Lest it seem this is a phenomenon for smaller metro areas only, the list of "highly concentrated" markets also includes Chicago, Washington, D.C., Houston and Philadelphia.

For the 70 metro areas studied, 20 had a single health plan in control of more than half the HMO/PPO market. In the 22 least populous states, 13 had one plan that controlled more than 50% of the HMO/PPO market.

In many cases, the most dominant plan is a Blue Cross Blue Shield plan, which is why physicians in states are rightly concerned when their nonprofit Blues wants to convert to for-profit, perhaps opening plans up to acquisition by an out-of-state company. It's a great way to buy market share -- Anthem Inc. got 69% of Maine's HMO/PPO market, 57% of New Hampshire's and 50% of Connecticut's, thanks to Blues acquisitions in those states. WellPoint Health Systems immediately became the No. 1 HMO/PPO in Georgia by buying the Blues plan there.

Don't expect new insurers to enter markets and provide much competition. As the AMA report notes, plans need to spend big money not only to meet state financial requirements, but also to build sufficient business to spread risk. The Justice Dept., in its evaluation of Aetna's 1999 purchase of Prudential's health care division, noted that a new plan entering Dallas or Houston would have to spend two to three years and $50 million just to get a foothold. In that case -- a rare example of the government getting involved in a health plan merger -- the Dept. of Justice did require Aetna to sell off those markets so its power would not be overwhelming.

The government should be willing to step in when plans are out of line. And certainly the practices that should cause regulators the most concern would be many plans' habit of writing contract provisions that give them the unilateral right to alter provisions at will, including those regarding utilization and quality assurance, and physician payments.

Plans know that physicians are bound by the AMA's Code of Medical Ethics and, in many states, legal requirements to provide for continuity of care for their patients. So physicians have little choice but to accept plans' contracts -- if you can call something that a plan can change at a whim a contract.

Couple that with the double-digit premium increases plans continue to put on patients, without fear of them taking their business elsewhere, and it's clear: too much plan market power results in an unfair deal to physician and patient alike. The FTC needs to investigate, and act forcefully as needed, when a managed-care machine starts pushing people around.