Health Insurance Competition Slim in Some States, Fuels Reform Efforts

Proponents of health reform say they want a government-run health insurer to give people more choice in how they are insured. Industry opponents say there is plenty of choice in the existing market, which includes hundreds of insurance companies across the country.

While it's true that many markets are flush with choice, people living in some states have few options for insurance -- with almost all consumers ending up in the same plan.

According to an early 2009 report from the Government Accountability Office that ranked the market share of insurers in each state, 17 states had a single insurer that served at least half of the market. Four of those states had insurers that controlled more than 75 percent. In Alabama and North Dakota, more than nine in 10 people with health insurance get it from a single company.

Blue Cross Blue Shield companies are the No. 1 insurer in 36 states, according to the GAO survey on small group health insurance carriers, which was able to collect information from all but one state. Seven years earlier, in a similar 2002 survey, the Blues dominated only 25 states, though a few states failed to supply numbers.

Alissa Fox, senior vice president for policy and representation at the Blue Cross Blue Shield Association, said the Blues enroll 100 million people across the United States. She said it translates to one-third of the nationwide market share. In those dominant markets, "having significant scale is important in getting the best value for your members," she said. "It's good for customers when there are insurers that compete strongly but also have significant size to get the best value for their customers."

Robert Zirkelbach, a spokesman for America's Health Insurance Plans, said insurance competition is vigorous. "Individuals, families and small businesses currently have a wide variety of choices ... from multiple health plans," he said. "The average physician's office contracts with at least a dozen different health plans."

"The question that needs to be answered is: Do consumers have a variety of choices to choose from?" said Zirkelbach. He cited HealthLeaders-InterStudy 2007 stats that demonstrate the top 40 metropolitan statistical areas average at least eight health insurers each.

The GAO reports show that, in 2009, the median number of available licensed health insurers per state is 27. In the 2002 report, there were six states that had 10 or fewer licensed health insurers: Alabama, Alaska, Hawaii, Kentucky, New Hampshire and Vermont, which averaged eight insurers each. By 2009, those same six states were averaging almost nine insurers each, though the overall average of available insurers per state declined slightly.

According to the office of North Dakota Insurance Commissioner Adam Hamm, he stated earlier this month that there is now very little competition in the state's health insurance market. Of the 10 or fewer companies operating there, he pointed out only half offer individual coverage. "I'm obviously interested in seeing more choice and competition in North Dakota," Hamm said, as long as companies commit to providing good, long-term service.

A study conducted by the American Medical Association on competition in health insurance -- also released this year -- produced a similar snapshot as the GAO report. In some rural states, health insurance business is increasingly concentrated. The report's introduction said, "This study finds that the vast majority of health insurance markets across the United States are highly concentrated and are dominated by one or two health insurers. Such high concentration is an important issue of public policy because it facilitates the use of market power, which may have anti-competitive effects."

The AMA numbers show about nine in 10 of those insured in Alabama are customers of Blue Cross and Blue Shield of Alabama, which according to an AMB Credit Report, wrote $4 billion in net premiums in 2008.

Such a dominant insurer hasn't necessarily been a bad thing, said Deputy Commissioner David Parsons of the Alabama Department of Insurance. "Over time, it's kind of like the Wal-Mart syndrome," he said. "They offer good products at lower prices, and people gravitate to it. They out-competed everybody." Still, he said Alabama is trying to seek out more companies to compete in its market, but it hasn't had much luck. He said "efforts have been made" to recruit competition, but a private company entering the market faces a period of accepting a loss in order to get established. "Not a lot of companies want to do that," Parsons said.

"Without rivals to compete against, a large health insurance company can take advantage of patients by raising premiums and dictating important aspects of patient care without fear of losing business," said AMA President J. James Rohack in a statement when his group's report was released. "Health insurers claim that eliminating rivals through mergers creates greater efficiency and lower health care costs, but this just isn't the case. Patient premiums, deductibles and copayments have soared in this increasingly consolidated market, without an increase in benefits."

A 2004 examination of the industry by the Department of Justice and the Federal Trade Commission produced another report that said: "In general, panelists agreed that the health care system has been designed around the preferences of payers, providers, and employers, and not consumers. A more consumer-driven system has the potential to lower costs, increase quality, and enhance consumer welfare."

It's with consumers in mind that Democrats are looking to make changes to the system. But the central point of Democratic proposals, the "public option" that they believe will foster choice and competition in the insurance market, is the component most resisted by the industry, including the Blues.

"We're very concerned about the government-run health plan option. No matter whose data you look at, millions of people are likely to lose their private coverage," Fox said. Pointing toward Medicare and Medicaid's chronic underpayment for services, she said that if a public option passes, "The government is going to underpay providers. The providers are going to cost-shift to private plans. And that will make a huge price differential." As a result, he said, the government insurer would drive the private companies out of business. "We think it's a recipe for having a single choice."

But the Blues aren't entirely averse to change, Fox said. "We think improvements are a good idea to make a more competitive marketplace. But it already is very competitive."

(Jesse A. Hamilton, Washington bureau manager: Jesse.Hamilton@ambest.com)