AMA survey: Health plan market domination virtually complete

In just about every metropolitan area, one or two firms control at least half the HMO/PPO market. Doctors aren't the only ones noticing.

By Bob Cook — Posted May 8, 2006

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The AMA's latest study of health plan competition shows that local market domination is a fact of life in just about every metropolitan area in the country -- a clue as to why physicians, businesses and others are trying to find a way out from the current third-party payer system.

The report found that out of 294 metropolitan areas studied, only 15 markets in six states -- California, Colorado, New Jersey, New York, Ohio and Pennsylvania -- did not meet the U.S. Justice Dept.'s definition of a "highly consolidated" HMO/PPO market. And those markets, the study says, are hardly competitive free-for-alls. They meet Justice's definition of "consolidated" HMO/PPO markets.

A highly consolidated market usually has two plans with at least 50% of the HMO/PPO market, while a consolidated market usually has two plans capturing at least 40%.

The AMA has sounded the alarm for years over health plan consolidation, saying it takes away physician leverage in contract negotiations and increases consumer premiums. But AMA Trustee J. James Rohack, MD, a Temple, Texas, cardiologist, said it is not just physicians taking notice of market consolidation. That issue, he said, has greater awareness among the public. Businesses are dropping or curtailing coverage because of increasing premiums, creating more uninsured and underinsured patients.

"Now all of a sudden the light bulbs have [turned on]," he said. "This is the time where you've got record profits being made by these for-profit insurance companies. ... Some people are coming to a realization that there needs to be a balance of providing affordable insurance."

But health plans dispute the AMA's conclusions. "There are no studies that conclude lack of competition as a factor in rising health care costs," said Susan Pisano of America's Health Insurance Plans. "It strikes me as ironic that at a time when one of the criticisms of the Medicare Part D prescription drug plan has been too many choices that we somehow have a report that suggests there aren't enough choices."

Plans note that if lack of competition were really considered a problem, the Justice Dept. would have put conditions on more than the merely two out of more than 400 health plan mergers over the last 12 years.

Markets are still competitive, said James Kappel, spokesman for Indianapolis-based WellPoint, and mergers reduce overall costs, making plans more affordable to consumers.

Consolidation over?

The fifth edition of the study, "Competition in Health Insurance: A Comprehensive Study of U.S. Markets," released in late April, is the most comprehensive yet. The 294 metro areas studied, using available public sources and market research by other private sources, was up from 92 last year and 40 in the first study.

Survey results, put together by the AMA's Private Sector Advocacy group, were current as of 2004. So they predate such 2005 consolidations as WellPoint's purchase of New York-based WellChoice, and UnitedHealth Group's acquisitions of California-based PacifiCare Health Systems and John Deere Health Plan in the Midwest.

The United-PacifiCare deal was a rarity in that the Justice Dept. put conditions on the deal before approving it; namely, selling certain operations in Boulder, Colo., and Tucson, Ariz., because the deal would give the new company too much market power.

Oddly, Boulder is one of 15 markets not listed as "highly concentrated" in the study, though it's listed as "concentrated," meaning Justice would look at any merger in those markets as possibly having "significant competitive concerns." But in the other deals, the plans being acquired already held a dominant position, and the plans doing the acquiring were nonexistent or barely existent in those markets.

So how did markets get so concentrated? Analysts say it's not by consolidation but by attrition.

In the 1990s, when managed care firms held premiums down to compete for market share, many plans grew by acquisitions, but many also grew when other plans with small market shares pulled out.

In fact, though large health plans have not ruled out future acquisitions, Wall Street analysts say the age of the megamergers is over, because plans no longer can buy others without raising Justice Dept. hackles. Meanwhile, they said plans also will be under increasing pressure from their business customers, despite a dominant market position, to stop raising premiums the usual 12% to 15% a year.

The rise in popularity of lower-cost consumer-directed health plans, in which a high-deductible plan is paired with a health savings account, is partly a result of the premium hikes dominant health plans have been able to pass on, Center for Studying Health System Change President Paul Ginsburg, PhD, said at a recent health plan industry conference.

But while HSAs have the support of business groups and the AMA, that market is small. Physicians are more worried about how they're supposed to survive under, as they see it, the thumb of dominant health plans.

The majority of members "have no ability to negotiate with health plans anymore unless they are members of extremely large medical groups," said Richard May, MD, a Denver orthopedic surgeon and president of the Colorado Medical Society. "We feel this compromises our physicians' ability to advocate on behalf of their patients because the plans hold undue sway over their professional survival."

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Large and in charge

The AMA's latest study on health plan market power shows overwhelming domination by a few plans in almost every area of the country. Some highlights from the survey:

  • 95%, or 279, of the 294 metropolitan areas studied meet the Dept. of Justice definition of highly concentrated (roughly, two plans carrying more than 50% of the market share) in the combined HMO/PPO business.
  • 99%, or 290, of the 294 metro areas are highly concentrated in the HMO business while 99%, or 293, of the 294 metro areas are highly concentrated in the PPO business.
  • One insurer has a 90% or greater share of combined HMO/PPO business in 11 metro areas. For PPO business alone, one insurer has a 90% share in 26 metro areas, and for HMO business alone, in 50 metro areas.

Source: "Competition in Health Insurance: A Comprehensive Study of U.S. Markets, 2005 Update," AMA Private Sector Advocacy group

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Almost total domination

The AMA Private Sector Advocacy group's 2005 update of its annual "Competition in Health Insurance: A Comprehensive Study of U.S. Markets" survey shows that plans are more dominant locally than ever. The study looked at 294 metropolitan areas, the most ever in the five-year history of the study. In the combined HMO/PPO product market, 95% (279) of metro areas were "highly concentrated" based on 1997 Justice Dept. merger guidelines (a market concentration index of 1800 or greater). Here are the 15 that weren't, in reverse order of concentration -- though their ratings would be high enough to be considered "concentrated" markets:

Metro Rating
Fort Lauderdale-Pompano-Deerfield Beach, Fla. 1399
New York-Wayne-White Plains, N.Y.-N.J. 1449
Miami-Miami Beach-Kendall, Fla. 1463
San Diego-Carlsbad-San Marcos, Calif. 1634
Santa Ana-Anaheim-Irvine, Calif. 1677
Akron, Ohio 1692
Colorado Springs, Colo. 1695
Allentown-Bethlehem-Easton, Pa.-N.J. 1723
Boulder, Colo. 1726
Modesto, Calif. 1741
Tampa-St. Petersburg-Clearwater, Fla. 1750
Edison, N.J. 1755
Riverside-San Bernardino, Calif. 1774
Oxnard-Thousand Oaks-Ventura, Calif. 1789
Newark-Union, N.J.-Pa. 1792

Notes: For HMO market concentration only, Miami (1310) and Oxnard, Calif., (1778) were the only two metro areas to fall below the "highly concentrated" level. For PPO market concentration only, Allentown, Pa., (1370) was the only metro area to fall below the "highly concentrated" level.

Source: "Competition in Health Insurance: A Comprehensive Study of U.S. Markets, 2005 Edition," AMA Private Sector Advocacy group

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The dominated

Even in major metro areas, a few plans dominate either the total HMO/PPO market, or the HMO and PPO markets individually. Ratings for some of the largest metro areas:

Metro HMO/PPO HMO only PPO only
New York-Wayne-White Plains, N.Y.-N.J. 1449 2131 2694
Los Angeles-Long Beach-Glendale, Calif. 1992 2224 4516
Chicago-Naperville-Joliet, Ill. 3188 3854 3042
Houston-Baytown-Sugar Land, Texas 2495 2912 3024
Atlanta-Sandy Springs-Marietta, Ga. 3578 3201 4374
Philadelphia 5129 5913 4297
Dallas-Plano-Irving, Texas 3000 2308 3597
Phoenix-Mesa-Scottsdale, Ariz. 2299 1988 4412
Boston-Cambridge-Quincy, Mass. 3139 3129 4885
Detroit-Livonia-Dearborn, Mich. 3337 2990 6239

Source: "Competition in Health Insurance: A Comprehensive Study of U.S. Markets, 2005 Update," AMA Private Sector Advocacy group

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External links

Competition in Health Insurance: A Comprehensive Study of U.S. Markets (link)

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