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The Results of Health Plan Market Concentration

By November 24, 2015Commentary

The proposed mergers of Anthem, Cigna, Aetna and Humana would substantially increase the concentration of participants in the health plan market.  A report from the Commonwealth Fund looks at likely impacts of the increase in competition.   (Commonwealth Brief)   As the brief points out, the health plan market is already very concentrated, with the top four participants having 83% of the market, an increase of almost 10% in eight years.  By comparison, the airline industry, which we all think is very concentrated, has only a 62% market share for its top 4 competitors.  And some research suggests that on a local level, markets are even more concentrated than they are nationally.  The brief then looks at research on the effects to consumers of greater health plan consolidation.  In some markets, greater health plan consolidation appears to have led to lower hospital prices, but it also appears to be the case that those lower prices are not passed on to consumers in the form of lower premiums, but wind up as higher profits for the health plans.  And where two participants in a market merge, not only do they charge higher premiums after the merger, but other health plans in the market do as well.  Research regarding pricing on the health reform law public exchanges finds that having additional insurers participating lowers premiums by a fair amount.  So we should expect that the pending health plan mergers would be another factor raising exchange premiums.

When any markets become more concentrated, competition declines, and that is as true in health care and as other industry.  And as they become oligopolistic, which is happening in the local health plan and hospital markets, price competition is seriously eroded.  Prior research, reported on here, suggests that the end stage is a situation where the health plans agree to pay the hospitals more and just pass the cost on to their employer and individual customers.  And there is absolutely zero evidence to suggest any quality or other benefits that accrue from health plan mergers.  For these reasons, the federal antitrust authorities should not approve these, or most other proposed mergers among health plans and should engage in a program to reverse many of the local market hospital mergers they wrongly permitted.

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