Almost three-quarters of U.S. health insurance markets highly concentrated

A new American Medical Association study finds highly concentrated health insurance markets have grown even more so over the past five years, a trend the trade group said can harm consumers and providers alike.

Health insurance markets were highly concentrated in 74% of the country’s metropolitan statistical areas in 2019, up from 71% in 2014. More than half of markets experienced upticks in health insurer consolidation during that time, according to the report, the 19th edition of the AMA’s research on the subject.

“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,” AMA President Dr. Susan Bailey said in a statement.

The report used a measure called the Herfindahl-Hirschman Index to determine market concentration. An HHI of greater than 2,500 indicates a highly concentrated market. Out of all 384 MSAs in 50 states plus Washington, D.C., the report found the average market HHI was highly concentrated, at 3,473. The median HHI was 3,176.

Between 2014 and 2019, the report found an average HHI increase of 151 points. Seventeen percent of markets experienced HHI increases of at least 500 points. Of markets that were not highly concentrated in 2014, one-quarter experienced HHI upticks large enough to deem them highly concentrated by 2019.

The study broke down its results by the type of insurance product, including health insurance exchanges created by the Affordable Care Act. Leemore Dafny, a Harvard Business School professor of business administration, said those findings square with those in her own research finding less competition in health insurance marketplaces, which are subsidized by the federal government. The average HHI in the exchanges was 6,623, and 99% of them are considered highly concentrated, according to the report.

“The exchange markets look especially concentrated,” Dafny said, “and when they’re less competitive, premiums go up.”

The AMA did not comment beyond its report, which encouraged a dialogue among regulators, policymakers, lawmakers and others about the need for a “better, more open and competitive marketplace.”

“These markets are ripe for the exercise of health insurer market power, which harms consumers and providers of care,” the report said. “Our findings should prompt federal and state antitrust authorities to vigorously examine the competitive effects of proposed mergers between health insurers.”

The report said that 57% of physicians providing patient care are in practices with 10 or fewer physicians. Under antitrust law, independent physicians can’t negotiate collectively with insurers, an imbalance that leaves most physicians with weak bargaining positions relative to commercial insurers, the report said.

The report cited Elizabethtown-Fort Knox, Ky. as an example of an already highly concentrated market that has gotten even more concentrated over the past five years. In 2014, the market had an HHI of 3,534. By 2019, that had grown to 5,159. That’s because Anthem’s market share went from 45% to 70% in that time. Anthem did not return a request for comment.

The report pointed out that health insurance mergers went largely unchallenged before the proposed 2007 merger of Independence Blue Cross and Highmark. That deal was ultimately called off because the Pennsylvania Insurance Department added a condition that one of them drop its Blues brand. Three years later, Blue Cross and Blue Shield of Michigan called off its acquisition of Physicians Health Plan of Mid-Michigan after the Department of Justice said it would sue to block it.

In 2015, Anthem attempted to acquire Cigna and Aetna sought to acquire Humana. Both deals were ultimately abandoned after lawsuits from the DOJ and multiple attorneys general.

America’s Health Insurance Plans, a prominent industry trade group, did not respond to a request for comment on the report. AHIP has for years highlighted reports on rising healthcare costs that result from vertical provider consolidation.

The AMA report focused on insurers, but Dafny said providers aren’t off the hook for their role in driving up healthcare costs.

“Provider prices are high and climbing,” she said. “There is finger pointing going on in both directions and I feel like the consumers end up being the losers because both provider prices and premiums are going.”