Study: Health Insurers Are Near-Monopolies

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Mon, 24 Apr 2006 19:52:54 -0400

[sSRI-Research] CBS News - Study: Health Insurers Are

Near-Monopolies

 

 

 

 

 

http://www.cbsnews.com/stories/2006/04/19/ap/health/mainD8H2PHJO0.shtml

 

Study: Health Insurers Are Near-Monopolies

 

SAN FRANCISCO, Apr. 19, 2006(AP) Consolidation among health insurers

is creating near-monopolies in virtually all reaches of the United

States, according to a study released Monday.

 

Data from the American Medical Association show that in each of 43

states, a handful of top insurers have gained such a stronghold that

their markets are considered " highly concentrated " under U.S.

Department of Justice guidelines, often far exceeding the thresholds

that trigger antitrust concerns.

 

The study also shows that in 166 of 294 metropolitan areas, or 56

percent, a single insurer controls more than half the business in

health maintenance organization and preferred provider networks

underwriting.

 

" This problem is widespread across the country, and it needs to be

looked at, " said Jim Rohack, an AMA trustee and physician in Temple,

Texas. " The choices that patients have now are more difficult. "

 

The AMA study cited a Justice Department benchmark in citing antitrust

concerns, the Herfindahl-Hirschman Index, or HHI. A score above 1,000

shows " moderate " concentration. Those scoring above 1,800 yield a

" high " concentration.

 

Figures show that 95 percent of the 294 HMO/PPO metropolitan markets

studied were above 1,800. Raise that HHI bar even higher to 3,000, and

67 percent rise above it.

 

The AMA study is the latest piece of evidence _ and most comprehensive

to date _ showing the market power of a few companies, and a large

number of regional nonprofit Blue Cross operations, is formidable and

growing. And it comes as premiums continue to grow at near

double-digit percentage rates.

 

Critics say that carriers are not only creating monopolies and

oligopolies in many regions, they also control the other side of the

equation in what is known as monopsony power. That means in addition

to having the most enrollees, they're also the biggest purchasers of

health care and can dictate prices and coverage terms.

 

It also makes it harder for new carriers to emerge, as pricing already

has been set by the dominant carrier.

 

That's particularly true in North Dakota, where the state's Blue Cross

Blue Shield provider has, by various estimates, a roughly 90 percent

share of the market, said Insurance Commissioner Jim Poolman. New

carriers would have to pay more to health-care providers and charge

less to policyholders to gain a foothold.

 

In North Dakota, there isn't much incentive for that, he added.

 

" It's difficult in a market of 640,000 people to write new insurance

policies, " Poolman said.

 

The AMA says there have been more than 400 mergers among health-care

insurers in the past decade. As they've consolidated and presumably

eliminated duplicative functions, they're not passing the savings in

personnel and administrative costs on to consumers. Rate increases,

though slowing, are higher than ever and growing at a near

double-digit pace.

 

Studies by the Kaiser Family Foundation show double-digit premium

hikes from 2001 to 2004 _ peaking with a 13.9 percent jump in 2003 _

soared well above inflation and wages. Those categories have risen at

rates less than a half to less than one-fifth that of insurance

premiums, Kaiser says.

 

Last year, the string of double-digit jumps was broken, but was close

to that level with a 9.2 percent increase, the Kaiser study said. The

foundation is not affiliated with the nonprofit HMO of the same name.

 

Some health insurance analysts have said the recent uptick in premiums

is part of an " underwriting cycle, " in which carriers go through a

period of boosting profits, and then ease up on premium increases for

several years.

 

But Gary Claxton, vice president at the Kaiser Family Foundation,

contends fewer insurers mean the need for underwriting cycles has

diminished, and it's likely that carriers will settle on the high side

when it comes to premium increases.

 

" They won't get down to cost, " he said. " They see it as their

collective right not to cut prices too much. "

 

David Colby, chief financial officer for WellPoint Inc., the nation's

largest carrier, disagreed. He said medical cost increases have forced

his company to hike premiums. He added that the percentage his company

spends on actual medical care has remained constant in recent years.

 

" Our premiums are pretty much tracking what medical costs are doing, "

he said.

 

The AMA says it has taken up this antitrust issue with the Department

of Justice, but says it has run into roadblocks with regulators. AMA

officials say regulators seem uninterested, even though government

officials are more than willing to target doctors' groups and

hospitals on antitrust matters.

 

Justice Department officials did not respond to requests for comment.