April 2006

AMA study shows limited competition in health insurance

In the largest study of its kind, an American Medical Association (AMA) report finds a steep decline in competition in the nation’s health insurance markets.

AMA board member J. James Rohack, MD, finds the reduction in the number of competing health plans troubling for doctors and patients, as competition drives innovation and efficiency in the healthcare system. He said, “Most alarmingly, in the combined HMO and PPO markets, 95 percent of metropolitan areas have few competing health insurers.”

In addition, the study found that in 95 percent of markets, a single insurer had a market share of 30 percent or greater, and in 56 percent of the markets, a single insurer had a market share of 50 percent or greater.

The AMA report, “Competition in Health Insurance: A Comprehensive Study of U.S. Markets,” analyzed 294 metropolitan health insurance markets against an index used by federal regulators for measuring market concentration. According to the federal index, markets that are highly concentrated have few competing health insurers.

“Patients do not appear to be benefiting from the consolidation of health insurance markets,” said Rohack. “Health insurers are posting historically high profit margins, yet patient health insurance premiums continue to rise without an expansion of benefits.”

The AMA findings must be viewed in the context of the unprecedented consolidation of the health insurance market. Between 1995 and 2005, there were more than 400 mergers involving health insurers and managed care organizations, according to a researcher of merger and acquisition trends in the health care industry.

“Given the troubling trends in health insurance nationwide, federal regulators need to take a hard look at whether patients are being harmed as mergers and takeovers reduce the number of competing health insurers,” said Rohack. “When it is difficult for a new insurer to enter a market with few dominant health plans, patients can be charged high prices without the threat of competition to keep insurers in check.”

Source: American Medical Association, www.ama-assn.org

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