Health-Care Reform

In Most Markets, a Few Health Insurers Dominate


The insurance industry is up in arms over congressional proposals to create a publicly financed competitor in an effort to bring down health-care costs. That may be because it doesn't have to face much in the way of competition now: Most regions of the U.S. are dominated by just one or two health insurers.

Each year the American Medical Assn. (AMA) surveys the commercial health-insurance landscape and finds little if any competition. Its latest report says that, out of 314 metropolitan markets, 94% are controlled by one or two companies, or fewer. In 15 states, one insurer has 50% or more of the entire market.

Such market concentration has become a potent argument for supporters of a public insurer, President Barack Obama among them. With no need to generate profits, a public plan could offer lower premiums, thus bringing competitive pressure to bear on the private insurers to do the same.

Insurers argue that creating a public plan would be a disaster for their industry. They point to an analysis by the Lewin Group, a subsidiary of UnitedHealth Group (UNH), that predicts 103 million Americans would jump to the cheaper public option out of the 160 million now covered commercially. The Congressional Budget Office, however, estimates that only 9 million to 10 million would switch by 2019. Karen Ignagni, president of the lobbying group America's Health Insurance Plans (AHIP), told Congress in a letter that a public plan would "significantly increase costs for those who remain in private coverage."

Insurers say they are already offering plenty of changes to their business practices to help further reform, so they should be spared this additional burden. AHIP favors ending the practices of charging higher premiums for sicker enrollees and denying coverage for preexisting conditions. "We do think comprehensive reform is needed," says Alissa Fox, senior vice-president of Blue Cross Blue Shield.

AHIP even launched an ad campaign on July 20 titled "Let's Fix Health Care," a far cry from the devastating "Harry and Louise" ads that helped sink reform efforts in the early 1990s. The ads call for a health-system overhaul but don't mention the public plan, which polls show the public supports. As Charles Boorady, health-care analyst with Citi Investment Research & Analysis, says: "The health insurers ... have a difficult PR battle."

DAMAGING STATISTICSThere are plenty of statistics that come out against the industry with regard to competition. Insurance companies complain about the AMA's methodology in its market concentration studies, but the U.S. Government Accountability Office came to similar conclusions in a recent report on small business coverage. It found that the median share of the largest carrier in a region was 47%, and in 16 markets the largest carrier had a 50% share or higher. "There is obviously a need for more competition," says Karen Davis, president of the nonprofit Commonwealth Fund, which researches health care.

AHIP, the industry group, notes that the Justice Dept. investigated and concluded the insurance industry is competitive. And insurers argue that, with some 1,300 companies in the business, it can be cutthroat. "It doesn't feel like the market is not competitive to us," says Brad Fluegel, chief strategy officer for WellPoint, the largest U.S. insurer.

The benefits of healthy competition are hard to spot, however. Over the past 10 years health-insurance premiums have increased 120%, compared with cumulative inflation of 44% and cumulative wage growth of 29%, according to a Henry J. Kaiser Family Foundation survey. On July 21, UnitedHealth reported an 8% gain in second-quarter premium revenues, despite falling enrollments. Analysts expect other insurers to have equally robust results.

It doesn't help, says Davis, that insurers cannot use their market power to bring down medical costs because they are facing off against hospitals with just as much power. A 2006 study found that one or two hospitals controlled the market in 88% of the nation's large metropolitan areas. "You've got a dominant insurer up against a dominant health-care provider," says Davis. "That just doesn't work out well for lowering costs."

With Joseph Weber in Chicago

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic networkObama's ConversionIn a July 15 interview with Dr. Jon LaPook, chief medical correspondent for CBS News, President Barack Obama explains how he came to agree that all Americans should be required to purchase health insurance, an idea he opposed during the campaign. Obama also explains why he believes there is a need for a public insurance plan.To view the interview, go to http://bx.businessweek.com/health-insurance-reform/reference/
Arnst is a senior writer for BusinessWeek based in New York.

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