Health insurance markets need competition, not consolidation

Jesse M. Ehrenfeld, MD, MPH , Immediate Past President

Reversing the trend toward consolidation in health insurance markets is the right prescription to cut exorbitant health care costs, improve outcomes and boost the quality of care. This is why the AMA strongly supports proposed draft merger guidelines issued in July by two federal agencies, the U.S. Department of Justice and the Federal Trade Commission. As proposed, the draft merger guidelines could subject health insurer mergers to greater scrutiny and potentially limit future mergers.

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The proposal offers 13 guidelines for analyzing the risk that mergers or other consolidations pose in shrinking competition or creating a monopoly, including cautioning how further consolidation would impact the record-high levels of concentration that already exist in many places. The truth is that a majority of U.S. health insurance markets are already highly concentrated. As documented in the 2023 update to the AMA report, Competition in Health Insurance: A Comprehensive Study of U.S. Markets (available here), 73% of the nation’s largest metro areas rank as highly concentrated, up from 71% in 2014. In 90% of these areas, at least one insurer held a commercial market share of 30% or more; in nearly half, a single insurer’s share was at least 50%.

This lack of competition has profoundly negative effects on patients and physicians alike. Because insurers that control a dominant market share face a reduced level of competition, they have little or no incentive to reduce policyholder premiums. The opposite is true, however; monopolistic effects of mergers often produce higher premiums because consumers seeking coverage have fewer choices.

Negative impact on physicians

At the other end of the equation, increased market consolidation gives insurers more leverage to lower the payments they provide to physicians. This level of control lessens competition for the purchase of physician services while allowing insurers to impose administrative requirements on physician practices in a whole host of ways, including increased prior authorization demands and heavier burdens of paperwork and electronic health record documentation.

At least one study has found that primary care physicians spend two hours on administrative functions for each hour devoted directly to patient care. The results are all too predictable: less time spent with patients, reduced job satisfaction and higher burnout.

Given the market power to drive down physician compensation to anti-competitive levels, health insurers can be expected to use it. And they do. Earlier this year, AMA President-elect Bruce A. Scott, MD, shared his experience in this area by describing how the dominant insurance carrier serving patients of his six-physician practice in Kentucky offered a contract-renewal proposal based on 80% of the Medicare payment rate, and surgical rates below what they had provided six years earlier. As Dr. Scott put it: “This same type of financial squeeze play is found nationwide, and its frequency has been exacerbated by health insurance industry consolidation.”

The quandary faced by Dr. Scott and our colleagues is the same one confronting physician practices in every market confronting high levels of insurance consolidation. Simply put, physicians cannot readily replace the business they would lose by rejecting an insurer’s contract offer without an irretrievable loss of income, along with harming their patients and disrupting their practices.

Insurers that leverage their dominant market position by seeking to reduce physician compensation may negatively impact the quantity and quality of patient care these physicians are able to provide.

The AMA will always fight to protect the interests of patients and physicians in health insurance markets. In addition to supporting the draft merger guidelines, the AMA champions greater competition in those markets through antitrust advocacy, and also makes available to the federation of medicine model legislation that empowers physicians and checks anticompetitive mergers at the state level.

We look forward to working with officials at both the state and federal levels to better protect the patient-physician relationship and the delivery of high-quality, affordable health care to all.