The Competitive Nature of Health Plan Markets

The federal government recently rejected two large insurance company mergers, based on fears about the impact on the competitiveness of health insurance markets.  So just how competitive are those markets even without the proposed mergers going through?  An analysis from Mark Farrah Associates takes a stab at that question.   (MFA Report)   According to the authors, private insurance companies provide coverage for about 264 million Americans at the start of 2017.  The largest sub-segment is the employer market, which has both self-funded and full-risk sub-segments, and covers about 196 million people.  Private insurers offer plans covering 51 million Medicaid members and 19 million Medicare Advantage enrollees.  Using Pennsylvania as an example, Mark Farrah then looked at market shares across the state.  Highmark, a Blue Cross plan in Western Pennsylvania, had a statewide market share of 27.7%; Independence Blue Cross, an Eastern Pennsylvania plan, had a share of 24.4% and Aetna owned 19.8% of the market.  Capital Blue Cross, in the center of the state, was at 9.4%.  So statewide the top three had a combined market share of about 72%, which is fairly concentrated, but could be competitive.

That is misleading, however, because Blues plans don’t compete in each other’s territories, so you have to look at submarkets.  So lets look at Pittsburgh.  There Highmark, all by itself has about a 72% share, followed by UPMC, owned by a local health system, at around 20%.  UnitedHealth trails with under 5% of the market.  No one could possibly describe this as a truly competitive market.  Now lets move to the center of the state, where Capital Blue Cross’ share is 46.4%, followed by Aetna at 40.7% and UnitedHealth with a whopping 4.9%.  More competitive than Pittsburgh?  Not likely.  Any time there are only two or three main competitors you are likely too see oligopolistic pricing patterns and collusion between dominant insurers and dominant health systems to raise prices to their mutual benefit.  Surely Philadelphia, the seat of freedom, will be better?  Independence has a 57.9% share, Aetna a 32.5% one and UnitedHealth lags at 6.6%.  So the top two have a 90.4% share.  Super competitive!!  This is where all the concentration in health care, both on the provider and insurance sides, has led us.  It has to be undone.  A good start would be to force Blue Cross plans to be able to compete with each other; no more exclusive territories.