“we report the two largest insurers’ commercial market shares and Herfindahl-Hirschman Indices (HHIs) for 384 metropolitan statistical areas (MSAs), the 50 states and the District of Columbia.
Among the key findings in this year’s update is that, based on the DOJ/FTC Horizontal Merger Guidelines, 74% of MSA-level markets were highly concentrated (HHI>2500). The average market was also highly concentrated, with an HHI of 3473. Other findings are that in 92% of MSA-level markets, at least one insurer had a commercial market share of 30% or greater, and in 48% of markets, a single insurer’s share was at least 50%.
We also calculated changes in market concentration between 2014 and 2019. Despite a small decrease in 2019, we found an upward trend in concentration over this period. On net, markets are more concentrated than they were five years ago. The share of markets that are highly concentrated increased from 71% to 74%. The level of market concentration also increased, with the average HHI rising by 151 points. Fifty-six percent of markets experienced an increase in the HHI, and in 17% of markets the increase was at least 500 points. In markets with a rise in the HHI, the average increase was 481 points. We found evidence of increases in concentration in markets that were already highly concentrated in 2014 as well as in those that were not. More than half (52%) of the markets that were highly concentrated in 2014 became even more concentrated by 2019. Twenty-five percent of the markets that were not highly concentrated in 2014 experienced an increase in the HHI large enough to place them in the highly concentrated category by 2019. Another 40% also had an increase, though not large enough to make them highly concentrated.
[..] High barriers to entry into health insurance markets also enable insurers to exercise market power. Examples of barriers include state regulatory requirements, the cost of developing a provider network and the development of sufficient business to permit the spreading of risk. Evaluating entry barriers is critical to antitrust analysis. If entry were easy, neither high market shares nor high concentration levels would necessarily translate into higher premiums because potential entry would force insurers to keep premiums in check. However, barriers to entry allow insurers with market power to charge premiums above competitive levels for an extended period of time.
Health insurer consolidation can lead to the exercise of another type of market power. Where health insurers have market power in their output market (i.e., monopoly power), it is very likely they also have market power in their input market (e.g., in the purchasing of physician services). This is because, geographically, these markets roughly coincide. Market power in input markets is known as monopsony power—the ability to reduce and maintain input prices (e.g., prices paid to physicians) below competitive levels. The exercise of monopsony power would also reduce the quantity (or quality) of health care below competitive levels and in turn harm consumers. Research finds evidence that insurer consolidation leads to the exercise of monopsony power vis-à-vis physicians in the form of lower physician earnings and employment. For these reasons, proposed mergers that create or increase insurers’ monopsony power should also raise antitrust concerns.
[..] Another factor that increases this risk is that most physicians work in small practices. Fifty-seven percent of those providing patient care are in practices with 10 or fewer physicians. Under antitrust law, independent physicians cannot negotiate collectively with health insurers. This imbalance in relative size leaves most physicians with a weak bargaining position relative to commercial payers. To the extent there is anticompetitive behavior by insurers, this would compromise the quantity and quality of care.”
Full report, American Medical Association, released 2020.10.14