Patient Support & Advocacy

What happens when insurance companies grow too big?

The majority of U.S. commercial insurance markets are highly concentrated, with 43% of metropolitan areas dominated by one insurer that controls at least 50% of the area’s business, AMA research on health insurance market competition has found.

While insurers may tout efficiencies that lead to lower costs, AMA research has shown that insurance company consolidation has the opposite effect. The AMA aims to protect patients and physicians by actively opposing anticompetitive health insurer mergers.

Take as just one example an AMA case study of the merger between UnitedHealth Group and Nevada’s Sierra Health Services. After the merger, the Las Vegas and Reno markets moved from “moderately concentrated” to “highly concentrated,” according to the 2010 definitions used by the U.S. Department of Justice and Federal Trade Commission.

Premiums in markets affected by the merger rose 13.7% compared to markets that were not affected.

“The empirical evidence is consistent with the hypothesis that the merging insurers exercised their market power in the wake of the merger,” the researchers concluded. “If there were any benefits to consumers realized from the merger, we could not observe them, and we can infer that they did not come in the form of lower premiums.”

When health insurance companies get too big, they undermine access and quality due to setting physician payments below competitive levels.

Other concerns of health insurance consolidation are that they:

  • Reduce insurers’ incentives to offer broader networks and to respond to patients’ access needs
  • Limit patient choice
  • Compromise patient-physician advocacy

This sentiment was echoed in the U.S. Court of Appeals for the District of Columbia’s 2–1 decision blocking the proposed $54 billion megamerger between Anthem and Cigna.

“In highly concentrated markets, already large insurers are less constrained by competition and thus tend to find it more profitable to capture medical savings and increase premiums,” Judge Judith Rogers wrote in the decision, adding that “in highly concentrated markets like this one, lower prices, if they occur at all, may be transitory.”

Physicians would have faced an estimated $500 million annual cut in payments had the Anthem-Cigna merger gone forward.

In blocking a similar merger, U.S. District Judge John D. Bates ruled that the proposed Aetna acquisition of Humana would weaken competition in the sale of individual Medicare Advantage plans in 364 counties. Read more about the AMA’s successful two-year campaign to block the Aetna-Humana and Anthem-Cigna megamergers.

The latest threat to competition in health care comes with proposed mergers of insurance companies and pharmacy benefit management (PBM) firms. The AMA, after exhaustive review, has concluded that the proposed merger of Aetna and PBM-pharmacy giant CVS should be blocked.

The AMA’s position is based on the view that the merger could could lead to higher health care costs.

For example, the merger would likely lead to a substantial rise in market concentration in 88% of Medicare Part D regional markets—30 out of 34—which would result in higher drug spending and patients spending more out of pocket for their prescriptions.