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Health insurance is staggeringly uncompetitive in America, and is poised to get even worse for everybody

Reuters/Larry Downing
Let us be one.
By Max Nisen
Published Last updated This article is more than 2 years old.

With two major health insurance mergers pending, the US may be headed for a healthcare market with only three major private health insurers, down from the five that exist now.

Critics argue that the pending mergers of Anthem with Cigna and Aetna with Humana will further reduce competition. But when it comes to private Medicare plans— the national social insurance called Medicare Advantage (MA) that uses private health insurers—the lack of competition is already awful. Ninety-seven percent of American counties have little or no plan competition, according to a new report by The Commonwealth Fund, a US healthcare research foundation.

Many of the counties are sparsely populated rural areas. But even within the 100 largest counties by number of Medicare beneficiaries, 81% aren’t competitive, according to the report. Seventy-seven percent of seniors enrolled in MA live in noncompetitive counties.

The report measured competitiveness based on the Herfindahl-Hirschman Index, which classifies markets as non-concentrated, moderately concentrated, or highly concentrated based on the the number of firms within the area and their market share. The Federal Trade Commission uses the index to classify markets for antitrust purposes.

Only one county in the US, Riverside county in California, is considered a non-concentrated market, and it only barely makes the cut according to the study:

Creating Medicare Advantage in 1997 and expanding it in 2003 was meant to offer Medicare enrollees more expansive coverage through partnerships with private insurance, while boosting competition between insurers for Medicare’s business. Under the MA program, the government reimburses private insurers based on local Medicare costs, while MA enrollees pay any additional cost above Medicare’s contribution.

Nevertheless, private insurance in the US has remained in the hands of a few dominant players. In a competitive market, insurers have an incentive to boost profit margins by negotiating down what they pay to health care providers, so that their premiums stay competitive with other insurers. In uncompetitive markets, premiums rise with less restraint, and there’s less pressure on costs.

Combining Aetna and Humana would create the biggest single company by market share in Medicare Advantage with more than a quarter of the market, surpassing United Health’s market share. Cigna and Aetna combined would have about 6% of the market. If the mergers are approved, more than half of the market would be controlled by just three companies. Already, three nationwide insurers have a majority of market power in nearly two-thirds of the hundred counties with the most Medicare beneficiaries.

In some areas, two merging firms already split the market, resulting in no competition.

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