AMA: 79% of Medicare Advantage Markets Have Little Competition

Nearly 80 percent of metropolitan statistical areas (MSAs) had highly concentrated Medicare Advantage markets, highlighting the lack of competition in the commercial health insurance market.

The American Medical Association’s (AMA) 2022 edition of Competition in Health Insurance: A Comprehensive Study of US Markets analyzed health insurance markets in 380 MSAs to determine competition levels.

AMA gathered data on preferred provider organization (PPO), health maintenance organization (HMO), point of service (POS), Medicare Advantage, and exchange plans from the Decision Resources Group Managed Market Surveyor. The survey reflects the state of product and geographic markets as of January 1, 2021

Market competition was determined by Herfindahl-Hirschman Indices (HHIs), which classify a market’s concentration level. For example, unconcentrated markets have an HHI below 1,500, moderately concentrated markets have an HHI between 1,500 and 2,500, and highly concentrated markets are those with HHIs above 2,500.

When looking at Medicare Advantage markets alone, AMA found that 79 percent of MSAs had Medicare Advantage markets with low levels of competition. According to the survey, Medicare Advantage market concentration has declined gradually since 2017, but the markets were still highly concentrated in 2021.

The average HHI for Medicare Advantage markets was 3,331, while the median HHI was 3,068. In contrast, the average HHI in 2017 was 3,923. The share of highly concentrated markets was also higher in 2017 at 87 percent.

“High levels of market concentration can result in diminished competitive constraints on insurers,” Jack Resneck, Jr., MD, president of AMA, said in the press release. “Unchecked market power among insurers is a formula for higher premiums, lower coverage, and inadequate levels of patient care, concerns of great relevance to Medicare Advantage.”

“The new AMA study shines a light on the lack of competition in Medicare Advantage markets across the country and will help regulators and lawmakers better scrutinize anticompetitive insurer behavior that harms patients and physicians in an industry where exploitative business practices are already commonplace.”

Over a third of Medicare Advantage markets had one insurer with a share of 50 percent or more, while 6 percent had one insurer with a share of 70 percent or more.

The largest insurer at the national level by market share was UnitedHealth Group, with a market share of 28 percent in 2021. Humana followed with a share of 19 percent, and CVS Health came in third with a share of 11 percent.

The ten largest insurers were rounded out by Kaiser Permanente (7 percent), Elevance Health (6 percent), Centene (4 percent), Cigna (2 percent), Blue Cross Blue Shield of Michigan (2 percent), Highmark (1 percent), and SCAN Health Plan (1 percent).

The ten states with the least competitive Medicare Advantage markets were Vermont, North Dakota, Wyoming, Montana, Rhode Island, South Dakota, West Virginia, the District of Columbia, Nebraska, and Louisiana.

Competition was also low in the combined market with all commercial health plans. Three out of four MSAs were highly concentrated, with an average HHI of 3,504. Most commercial markets (91 percent) had at least one insurer with a market share of at least 30 percent. In 48 percent of markets, one insurer had a share of 50 percent or more.

UnitedHealth Group (15 percent) had the highest market share in the combined market as well, followed by Elevance Health (12 percent) and CVS Health (11 percent).

Highly concentrated markets with little competition can drive up health plan premiums and other out-of-pocket expenses for consumers. Mergers and acquisitions between payers may do more harm than good in these cases if they lead to significantly high market power.

“Our findings should prompt federal and state antitrust authorities to vigorously examine the competitive effects of proposed mergers involving health insurers,” AMA wrote.