AMA: Patients are vulnerable to health plan monopoly power

AMA: Patients are vulnerable to health plan monopoly power A guest column by the American Medical Association, exclusive to KevinMD.com.

When health plans have merged, they’ve said that a bigger insurance company would drive down premiums. The casual acceptance of this economic fallacy led to more than a decade of unchecked megamergers that helped health plans cement dominant market positions across the country.

It’s now clear that when health insurers talk about taking over another plan, what they often mean is taking over another market. Both research and anecdotal evidence indicate that bigger health insurers are not better. Health insurers consolidation has resulted in higher premiums, instead of the promised enhanced efficiencies and lower costs.

Mergers and acquisitions have produced large health insurers with monopoly power. That assessment is part of the AMA’s new study Competition in Health Insurance: A Comprehensive Study of U.S. Markets. According to the 2012 annual market analysis, higher premiums, watered-down benefits and growing insurer profitability suggest that a lack of health insurance market competition is harming patients and physicians.

The AMA analysis concluded that anti-competitive conditions are present in 70 percent of 385 metropolitan areas in the U.S. Nearly 40 percent of metropolitan areas have one health insurer with a majority share of the commercial health insurance market. The results of the study should prompt federal and state antitrust authorities to more vigorously examine the anti-competitive effects of proposed mergers among health insurers.

The anti-competitive areas highlighted by the AMA analysis are vulnerable to a marketplace imbalance that favors powerful health insurers. A dominant health insurer can flex its monopolistic muscle to reduce payments to doctors and undermine the quality of care, without fear of losing business to a competitor.

High barriers to market entry help keep start-up competitors away and allow dominant health insurers to charge premiums above competitive levels. Start-up health insurers must meet costly state statutory and regulatory requirements. It can take several years and millions of dollars for a start-up insurer to begin competing with entrenched health insurers. Such conditions represent insurmountable barriers for start-up insurers to expand to new markets and offer a competitive choice to potential patients.

To increase competition and patient choice of health plans, the AMA supports an open marketplace model for health insurance exchanges created by the Affordable Care Act. Health insurance exchanges promise a new way for millions of Americans to obtain health care coverage from private insurers.

But there is a danger that large health insurers will have too much influence in the development, governance and operation of these exchanges. It is vital to include physicians and patients in the governing structures of health insurance exchanges to ensure they best meet the health care needs of residents in each state.

Jeremy Lazarus is President, American Medical Association.

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  • davemills555

    Great article! Absolutely fantastic! I have not read a better argument that promotes universal single-payer healthcare for all Americans. The insurance companies have systematically ruined healthcare in America. Even with the new healthcare reform law, private insurers will see even bigger windfall profits in the future while offering the same minimal benefits for which they are infamous. The sooner we understand that healthcare insurance companies bring absolutely no value to the table, that they are in the game for profit alone, that they see subscribers as merely a cost of doing business, that they have never offered value for the consumer in the past, only then we will begin to have a discussion about eliminating private insurers completely from ever having a seat at the table again.

  • bill10526

    What a terrible article!

    As a kid back I came across two graphs that showed how much a man (It was the 1950s.) had to work to buy a unit of bread in one case and a unit of electricity in the other. The downward slope of those graphs said standards of living were rising rapidly. Competition had almost nothing to do with these measures. Blue Cross Blue Shield was a monopoly that impose a meager 2% load to health care costs.

    When health insurance was open to competition, that competition applied, as predicted by simple economics to underwriting skills. Health costs went down for good risks, but the burden to society went up to the extent that underwriting is expensive. That was a big reason that community rated Blue Cross was such a blessing.

    Private sector health care has worked in other countries when anti-selection is controlled as with the Obamacare mandate. davemills555 comment is terrible too.

  • Robert Luedecke

    Thank you to Dr. Lazarus and to the AMA for standing up for increased competition in health insurance. I am not ready to trust our politicians with a single-payer system, rather America’s greatness is based on free-market competition. That free-market competition is introduced by Obamacare in organizing the market so we can compare apples to apples and then make our decisions. For large employers, this is the same role played by the HR department. For those of us who have small employers, until Obamacare there was no one to do the work of the HR department. Since the majority of Americans are employed in small businesses, this will help a lot of us, including this self-employed physician. Thank you again, AMA!

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