- The four largest payers in the US have continued to get bigger over the past few years, said Leemore S. Dafny, a professor of the Bruce V. Rauner Professor of Business Administration at Harvard Business School, during a House Energy and Commerce Committee hearing.
The trend is worrying, she said, comparing payer consolidation practices to anticompetitive practices in the airline industry to show sharp rises in anticompetitive payer activity.
“Between 2006 and 2014, the sum of the market shares for these four insurers (the ‘four firm concentration ratio’) increased from 74 percent to 83 percent,” Dafny said. “By comparison, the four-firm concentration ratio for the airline industry in 2014 was 62 percent.”
Dafny found that BlueCross BlueShield covered nearly 52 percent of all lives in the US followed by UnitedHealthCare (13 percent), Aetna (11 percent), and Cigna (6 percent).
This high degree of concentration is leading to markets controlled by just one or two players, which may lead to higher premiums and less competition, added Dr. Martin S. Gaynor, E.J. Barone University Professor of Economics and Health Policy at Carnegie Mellon University.
“If one looks at the state or local level, the concentration is more pronounced. In 2014, the two largest insurers had 70 percent or more of the market in one half of all metropolitan statistical areas,” Gaynor said.
Consumer premiums are more likely to decrease with higher payer competition and allow payers to offer more expensive health plans with lower quality, if a payer has extensive market control, said Dafny.
“When prices are posted, mergers can enable profitable price increases (or reductions in quality that is costly to produce) because purchasers have fewer alternative options,” she added. “Mergers of insurers selling plans to individuals or to small groups may be motivated in part by the ability to relax competition in their respective markets.”
Gaynor agreed with Dafny and found that markets with more payer competition led to lower consumer premiums. Payer consolidation has led to increases in consumer premiums over the last three decades, he said.
“For example, the merger between Aetna and Prudential in 1999 was found to have led to a 7 percent increase in premiums for large employers,” Gaynor said. “Similarly, the Sierra United merger in 2008 was found to have led to an almost 14 percent increase in small group premiums.”
The economists agree that stronger antitrust enforcement and renewed state and local policies can limit aggressive consolidations.
Dafny suggested that employers should be incentivized or required to develop “private exchanges,” where employees can shop for a preferred health plan.
Dafny referenced data from public insurance exchanges, which found that employees are sensitive to higher prices and more willing to select narrow-network plans. Se believes that these preferences can pressure health plans to develop more cost-friendly products and reduce the need for mergers that lead to less competitive markets.
“If consumers refuse to pay for a higher-priced product that doesn’t offer greater value warranting the price premium, the incentive to pursue anticompetitive consolidation will be diminished,” Dafny added.
Gaynor said that state insurance commissioners can lead efforts to reduce payer consolidation by reviewing potentially anti-competitive contracts between payers and providers.
He added that federal and state agencies should investigate “gag clauses” that prevent payers from providing information about less expensive providers to health plan members.
Additionally, Gaynor believes that payers can streamline administration of quality reporting to avoid unintended incentives for poorly performing providers. Lowering unnecessary incentives may reduce a payer’s need to consolidate or merger with a provider organization, he said.