Most metro areas dominated by 1 or 2 health insurers

The AMA's 2008 update on competition in the health insurance market shows a still tightly concentrated field of companies, with the majority of metropolitan areas dominated by two -- and in many cases just one -- health plan.

Because the federal government doesn't often undo mergers, the question is whether anything can put the brakes on consolidation: a new administration and Congress, a new attitude among state regulators, or a lack of capital by bigger plans that will keep them from buying competitors.

"If it was bad four or five years ago, any increase is a concern, especially because what we'd like to see is it get less concentrated," said Mark Botti, an attorney and antitrust expert who spent many years at the U.S. Dept. of Justice Antitrust Division and now practices as a partner at Akin, Gump, Strauss, Hauer & Feld in Washington, D.C.

He said one way out of the current concentration of health insurers is for regulators both at the state and federal level to enforce rules that keep dominant companies from blocking new competitors from entering a market -- barring "most-favored-nation" contract clauses, for example. Those deals require physicians to give their lowest price to a specific plan.

The AMA survey, released in late January, gives a score gauging the concentration of the commercial market for 314 metropolitan statistical areas. The updated report showed 94% had commercial markets that were "highly concentrated" by standards set by the Federal Trade Commission and Justice Dept.

That's down slightly from the report released a year ago, when 96% of the cities in the report qualified as "highly concentrated." But it's clear consolidation hasn't slowed; rather, it has accelerated since Jan. 1, 2006, the date of the enrollment data used in the current report.

The AMA report found a range of consolidation, from areas where the greatest market share for one company was less than 25%, to areas with a near monopoly -- 97% share -- in commercial health insurance.

Using a formula that includes the number of companies operating in a market and each company's market share, each area examined in the AMA report was assigned a Herfindahl-Hirschman Index, with a maximum score of 10,000.

Federal agencies in 1997 deemed a score higher than 1,000 "moderately concentrated," while higher than 1,800 is "highly concentrated," and used this as a guideline when considering mergers.

Florida metropolitan areas from Miami to Jacksonville were among the least concentrated, with scores as low as 1,216 -- still qualifying as "moderately concentrated."

In Alabama, where the state's Blues plan is very dominant in the commercial market, the HHI scores hover close to 10,000.

Robert Zirkelbach, spokesman for the trade group America's Health Insurance Plans, said the health insurance industry is "very competitive" and closely regulated. One company's domination often is due to other plans' choices not to enter a market rather than the existing company using unfair tactics to quash competition. "I think you can safely say that's not occurring. The health insurance industry has such strict oversight."

AMA President-elect J. James Rohack, MD, a cardiologist who practices in Temple, Texas, said market consolidation is a problem for physicians and patients not just when one company's market share is high, but when the firm uses that power for ill.

"If you have a 90% market share, yet you are open and transparent as far as how prices are created, fair as far as contracts, providing lower premiums because you're not paying exorbitant salaries to administration, then to the community where physicians are practicing and patients are residing, that can be fine," he said.

In some cases, most notably when shareholder-owned insurers bought up regional market share, mergers have resulted in physician complaints of plans using their market power to drive down payments.

Some of the most dramatic consolidation in recent years happened soon after the enrollment data were captured for the most recent AMA report. The most recent deals were met with resistance from organized medicine, and in some cases closely followed by allegations of regulatory violations and problems integrating.

In 2008, UnitedHealth Group bought Nevada-based Sierra Health Services, and Cigna bought Great-West Healthcare, a Colorado-based plan with members throughout the West. United was required to divest some Sierra membership as a condition of its merger, but otherwise over most of the last decade, it was smooth sailing at the federal level for health plans buying other plans.

Then in January, two events signaled to some in the field that the era of easy mergers was over. First was the inauguration of Barack Obama, who, as a U.S. senator, had expressed dissatisfaction at the consolidation of the health insurance industry.

Second, the proposed consolidation of Pennsylvania's two largest Blues plans fizzled when the state's insurance commissioner said he would only offer approval if the plans agreed to give up one of their Blue trademarks to open themselves to competition.

The deal already had won approval from the U.S. Dept. of Justice, so Commissioner Joel Ario's actions prompted some to consider that state regulators might be able and willing to block mergers.

Botti said he sees an opportunity now for regulators to take antitrust enforcement to another level, one driven by examination of the current markets.

"We see continued improvement on the part of the agencies, but it's responsive to when they find something they need to address, when a merger comes through," he said. "It would be useful if they really studied these markets."