AMA: 56% Increase in Payer Market Consolidation In Past 5 Years

Payer market consolidation has been increasing over the past five years and this consolidation is having negative effects on consumers, the American Medical Association (AMA) asserted in its latest study on the subject.

Continuing the themes of its previous studies on payer market concentration, AMA found cause for concern with the increased consolidation amongst payers.

“This study addresses the following questions: Are health insurance markets competitive, or do health insurers exercise market power? Are proposed mergers between insurers likely to maintain, enhance or create such power?” the study commenced.

“We find that the majority of health insurance markets in the United States are highly concentrated and that, on average, markets are more concentrated in 2019 than they were in 2014. Coupled with evidence on their anticompetitive behavior, this strongly suggests that health insurers are exercising market power in many parts of the country and, in turn, causing competitive harm to consumers and providers of care.”

The study evaluated market concentration for 384 metropolitan statistical areas from across the nation through the Herfindahl-Hirschman Indices (HHI) as well as the commercial market shares of the two largest payers.

The HHI score squares the market share for each competing firm in the market and then adds those together. The more competitors of relatively equal market share that exist in a market, the smaller the HHI score will be; thus, a smaller score is associated with stronger competition.

The DOJ and the Federal Trade Commission (FTC) consider a market with an HHI score over 2,500 being the benchmark for high concentration.

Combined health maintenance organization (HMO), preferred provider organization (PPO), point of service (POS), and exchange markets, almost three-quarters of the combined market was highly concentrated, with median and mean scores well above the benchmark.

Broken down by different markets, most HMOs—which are particularly favored by consumers in Medicare Advantage—were highly concentrated. Ninety-six percent fell above the HHI benchmark.

The most concentrated market was the POS market, which saw 100 percent concentration. Among PPOs, 86 percent of the markets were highly concentrated and 99 percent of the exchanges were highly concentrated.

The health insurance industry’s market concentration has been building over the past five years, the AMA found, with 56 percent of markets seeing an increase during this time period.

Overall, the average market’s HHI score rose 151 points from 2014 to 2019. A little over seven in ten markets were highly concentrated in 2014 (71 percent), but five years later that rose to 74 percent of market shares that were highly concentrated.

For many markets, these increases represented large leaps into greater concentration, not quietly wading in. Those that saw an increase during this timeframe had on average a 481-point increase, but 17 percent experienced an increase at or above 500 points. Just under half (48 percent) of markets that had their HHI increase by a minimum of 100 points.

Some of the markets that experienced this boost in concentration had not been consolidating before the study timeframe. Forty percent increased their HHI scores but did not hit or exceed the 2,500 benchmark score. However, a quarter that were considered relatively low or moderate concentration previously underwent enough consolidation that their HHI surpassed the benchmark.

Some markets, however, were already highly concentrated before 2014. Over half of these markets (52 percent) already had high concentration and became further concentrated in this five-year timeframe, according to AMA’s calculations.

In each market, between 92 percent and 100 percent of the market had at least one insurer that boasted a market share of 30 percent or more.

The AMA argued that this amount of consolidation has inflicted only negative effects on consumers, exhibiting none of the positive impacts that consolidation promises in theory.

“For many of the 70 million Americans who live in highly concentrated health insurance markets, a lack of competition is a problem that keeps getting worse as consumers have more limited health insurance options to choose,” Susan R. Bailey, MD, president of the AMA, said in a press release.

Instead of passing on savings, health payers have used consolidation to raise premiums across these markets, AMA critiqued.

“The AMA strongly encourages a dialogue among regulators, policymakers, lawmakers, and others about the need for a better, more open and competitive marketplace to benefit patients and the physicians who care for them.”

Naturally, payers are much more concerned about provider consolidation, which AHIP has warned leads to higher prices and lower quality.

Recent studies have shown that providers’ market share may play a role in increasing private payers’ reimbursement rates to nearly 200 percent of Medicare’s. In a literature review, Kaiser Family Foundation discovered that larger hospitals may negotiate higher reimbursement levels from private payers.