Health insurance consolidation: Good for consumers?

Health care insurance, in some ways, is not dissimilar to many other industries. With many options and disparate services in a variety of locations inevitably comes consolidation and market concentration, which ultimately decreases competition for consumers. That’s according to new findings from a report by the American Medical Association called Competition in Health Insurance, A Comprehensive Study of U.S. Markets.

Key findings, using data from the Decision Resources Group, show that based on the Department of Justice/Federal Trade Commission Horizontal Merger Guidelines, 75% of metropolitan statistical areas (MSA)-level commercial markets are highly concentrated (Herfindahl-Hirschman Indices (HHI)>2500). The average commercial market is also highly concentrated, with an HHI of 3504. Other findings are that in 91% of MSA-level markets, at least one insurer has a commercial market share of 30% or greater, and in 48% of markets, a single insurer’s share is at least 50%.

The report also says that changes in commercial market concentration between 2014 and 2021 have been significant. Although there were some fluctuations in either direction in the intervening years, the share of commercial markets that are highly concentrated increased from 71% to 75%, and the average HHI rose by 181 points. Fifty-eight percent of markets experienced an increase in the HHI, and in 23% of markets the increase was at least 500 points. In markets with a rise in the HHI, the average increase was 540 points.

There is also evidence of increases in concentration in commercial markets that were already highly concentrated in 2014 as well as in those that were not. More than half (56%) of the markets that were highly concentrated in 2014 became even more concentrated by 2021. Thirty percent of the markets that were not highly concentrated experienced an increase in the HHI large enough to place them in the highly concentrated category by 2021. Another 33% also had an increase, though not large enough to make them highly concentrated.

Related: The cost of consolidation: Are mergers actually cost efficient?

High concentration levels in health insurance markets are largely the result of consolidation (i.e., mergers and acquisitions), which can lead to the exercise of market power and, in turn, harm consumers and providers of care. It appears that consolidation has resulted in the possession and exercise of health insurer monopoly power — the ability to raise and maintain premiums above competitive levels — instead of the passing of any benefits obtained through to consumers.