Health Insurance Industry Consolidation Grew from 2014 to 2020

Health insurance industry consolidation continued to increase, restricting consumers’ options for coverage, an American Medical Association report argued.

“As merger rumors involving health insurers swirl, the prospect of future consolidation in the health insurance industry should be more closely scrutinized given the low levels of competition in most health insurance markets,” Gerald E. Harmon, MD, president of the AMA, said in the press release. 

“For two decades, the AMA study has been helping researchers, lawmakers, policymakers, and federal and state regulators identify markets where consolidation involving health insurers may cause competitive harm to consumers and providers of care.”

Using the Decision Resources Group (DRG) Managed Market Surveyor—with certain exceptions—the report looked at data from metropolitan statistical areas (MSAs) and national-level data to assess the status of industry consolidation. The data came in the form of market-level Herfindahl-Hirschman Indices (HHI) and health insurer market shares.

Data related to preferred provider organizations, health maintenance organizations, and point-of-service plans reflect the state of these markets in January 1, 2020. Data related to the exchanges reflect their condition on July 1, 2021.

“The HHI is the sum of the squared market shares of all firms in a market,” the report explained.

According to the Department of Justice and the Federal Trade Commission’s guidelines, an unconcentrated market will have an HHI lower than 1,500, a moderately concentrated market’s HHI will be between 1,500 and 2,500, and highly concentrated markets have an HHI of more than 2,500.

AMA found that nearly three-quarters of all metropolitan statistical areas—or 280 areas—fit into the highly concentrated category. The mean HHI for preferred provider organizations, health maintenance organizations, point-of-service plans, and exchange plans combined was 3,494 and the median HHI for these plans was 3,178.

More than nine out of ten markets (91 percent) had one insurer holding at least 30 percent of the market share. And 46 percent of the markets had one insurer holding at least 50 percent of the market share.

Moreover, AMA found that the rate of consolidation was increasing, continuing a trend that the organization emphasized in its 2020 report on the insurance industry’s consolidation.

Between 2014 and 2020, the average HHI for metropolitan statistical areas rose by 171 points. The HHI increased in nearly six out of every ten markets (57 percent). Slightly less than half of all markets saw an increase of 100 points or more and 21 percent saw HHI increase by 500 points or more.

More than a quarter of the markets that were considered unconcentrated in 2014 (26 percent) saw enough of an HHI increase to be categorized as highly concentrated six years later and over half of the markets that were highly concentrated in 2014 (54 percent) became even more concentrated over time.

On the national level, market shares saw very little change.

“National-level market shares do not necessarily reflect the degree of concentration that is relevant to most consumers,” the report qualified. “Nonetheless, they are a useful summary measure and paint a succinct picture that complements local-level market shares.”

Humana was missing from the lineup in 2020 and Centene rose from seventy-sixth place to holding the tenth highest market share. The other nine insurers in the list were the same from 2014 to 2020, with nearly the same order. UnitedHealth Group, Anthem, Aetna, and Cigna continued to hold the highest market shares at 15, 12, 11, and 10 percent respectively in 2020. 

The Blues plans combined had a market share of 42 percent in 2020, a slight dip from 44 percent in 2014. Blues plans have been known to dominate the Affordable Care Act exchanges in particular, holding nearly 50 percent of the market share in 2018.

AMA noted that, although consolidation continued to grow during this time period, the DOJ blocked a couple of key mergers that would have dramatically tipped the scales toward even higher consolidation. The Anthem-Cigna merger, which started in 2015, did not come to its final resting place legally until the last day of August 2020.