The Health Care Environment in Maryland: The Private Insurance Market

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The Health Care Environment in MarylandThe
Private Insurance Market

• Deborah Chollet, Ph.D.
• Maryland Health Care Access
• and Reimbursement Task Force
• October 15, 2007

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Health insurance markets are concentrated in most
states

• 1 to 3 insurers hold at least half of the market
• Blue Cross Blue Shield plans, for-profit or
  nonprofit, typically are the largest carrier
• Local markets may be especially concentrated
• In 64 of urban markets, one insurer has a
  combined HMO/PO market share of 50 or more (AMA
  2007)

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Concentration of group and individual earned
premiums in Maryland 2004
Source Mathematica Policy Research analysis of
NAIC data.
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Concentration of PPO/HMO enrollment in Maryland
metropolitan areas 2005
Source American Medical Association, 2007.
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Sources of growing concentration

• Economies of scale
• Administrative functions
• Information systems
• Disease and utilization management
• Regulatory compliance
• Decline of service-based HMOs in favor of PPOs
  with no apparent diseconomies of scale
• For-profit motivation earnings growth by
  acquisition

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Federal antitrust authority

• McCarran Ferguson Act (1945) exempts the
  "business of insurance" from federal antitrust
  laws to the extent the states regulate
• Framework of the 1992 Horizontal Merger
  Guidelines governs federal approach to mergers
  and acquisitions

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Concerns of antitrust oversight market power
vs. greater efficiency

• Is the merger or acquisition likely to "create or
  enhance market power or ... facilitate its
  exercise i.e., enable the insurer to maintain
  prices above competitive levels for a significant
  period of time?
• Will it produce cognizable efficiencies that
  are merger-specific, have been verified, and do
  not arise from anticompetitive reductions in
  output or service?

1992 Horizontal Merger Guidelines
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Potential benefits of insurance market
concentration

• Greater administrative efficiency
• Investment in information systems, quality
  improvement, disease management
• Negotiation of provider prices and efficient
  reduction in health care costs
• But

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Potential costs of insurance market concentration

• Higher insurance prices per policy value
• Inefficient, high surplus and/or profit
• Monopsony power, forcing reduction of provider
  rates
• Alignment of providers to exert countervailing
  power, or low provider margins and service
  shortages
• Higher consumer costs

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Challenge for regulators in a more concentrated
market

• Active rate review/approval
• Attention to persistent high surplus and profit
• Consumer protection, evidence of health service
  supply problems
• Accountability for the efficiencies claimed to
  justify mergers and acquisitions?

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