Market Concentration Escalated in Small Group, Individual Markets

The Government Accountability Office (GAO) has released a report finding high market concentration across the payer industry and that having increased health plan options does not necessarily reduce market concentration.

The Affordable Care Act directed GAO to investigate payer market concentration regularly. This report, GAO’s most recent analysis, looked at data from 2017 and 2018 to assess market concentration across individual, small group, and large group health insurance markets.

GAO defines “highly concentrated” as a market in which three payers or fewer hold 80 percent of the market share.

“Several factors can affect concentration in health insurance markets,” GAO explained.

“High concentration levels have often been the result of consolidation— mergers and acquisitions—among existing issuers. However, concentration can also increase if existing issuers leave the market, thereby reducing the number of issuers from which enrollees can purchase coverage. In addition, concentration can persist because of the difficulty for new issuers to enter the market.”

During the years that GAO gathered this data, every private health insurance market has been highly concentrated. This year’s analysis was no different.

In at least 43 states, including the District of Columbia, all markets were highly concentrated.

In particular, the individual and small group health insurance markets have seen steeper increases in concentration over the course of the last two or three years. By the end of the study period in 2018, both markets had a minimum concentration of 94 percent.

For the individual health insurance market, the high concentration level dipped between 2014 and 2016, but even during this time the median number of payers was on decline, hinting at the growing concentration.

Individual health insurance market concentration spiked again from 2016 to 2018 to see high concentration levels across 46 states in 2018. By that point, one payer dominated 50 percent of the market share across 31 states.

This market went from 13 states having three or fewer participating payers to 32 states existing on the individual health insurance market exchange in 2018.

Federally facilitated exchanges were common across individual health insurance markets and seemed to drive high concentration.

Thirty-nine states were still on the federally facilitated exchange from 2016 through 2018. That number has since decreased as states like New Jersey created their own state-based exchanges.

“From 2015 through 2018, states that were already highly concentrated became even more concentrated, often because the number of issuers decreased or the existing issuers accrued the entirety of the market share within a state,” the report explained.

Also, more individual health insurance enrollees purchased coverage through the exchange, as opposed to the off-exchange individual health insurance market.

Small group health insurance market concentration levels escalated sharply around 2015. The eight years from 2011 through 2018 saw the median number of issuers drop by more than half and ten more states gained higher concentration levels.

By 2018, one payer dominated at least 50 percent of the market share in 33 states.

As in the individual health insurance market, the small group health insurance market had a period of decline in market concentration. For the small group market, this dip occurred between 2011 and 2015. But from 2015 until the end of the study period, concentration grew sharply.

In contrast to these two markets, concentration levels in the large group health insurance market were largely stable across the study period. However, the levels were already high at that point. One payer had 80 percent or more of the market in eight states and one had 90 percent or more of the market in four states.

These findings came about a month after the American Medical Association (AMA) released results from its own study of the payer market. AMA found that the payer industry was 56 percent consolidated, using the Herfindahl-Hirschman Indices.