Across the United States there are relatively few health insurers offering coverage in any particular geographic market. Following Justice Department guidelines, over 94 percent of U.S. markets for health insurance are "highly concentrated." In some states, there are only one or two insurers offering health insurance coverage. Despite this level of market concentration, however, the Congressional Budget Office has concluded that abolishing the antitrust exemption for health insurers would have little impact on either the federal budget or the cost of health care.
Both the American Medical Association and the advocacy group Health Care for America Now! have issued reports (available here and here) describing the high level of concentration in the health insurance industry within almost every geographic market in the United States. Only a handful of health insurers – and sometimes only one insurer – operate within any particular metropolitan area, region, or sometimes even within an entire state. In this article by Emily Berry published in AmedNews it is suggested that the market concentration occurs because existing insurers erect barriers to entry within particular markets.
On October 21, the House Judiciary Committee, by a vote of 20-9, approved H.R. 3596, which would abolish the antitrust exemption for health insurers. The Congressional Research Service states that the bill:
Declares that nothing in the McCarran-Ferguson Act shall be construed to permit health insurance issuers or issuers of medical malpractice insurance to engage in any form of price fixing, bid rigging, or market allocations in connection with providing health insurance coverage or coverage for medical malpractice claims or actions.
On the same date the bill's sponsor Representative Conyers (D-MI) issued this statement:
"Today’s vote is an important step forward toward opening up health and medical malpractice insurance markets to real competition," said Conyers. "Joined by three of my Republican colleagues, the House Judiciary Committee agreed to bring antitrust enforcement to the two most abusive practices of the health insurance industry – price fixing and market allocation. Although state regulation of this industry is crucial – and is preserved in this bill – it has proved insufficient to prevent these particularly abusive practices. No one on this committee believes that price fixing or carving up markets is a good thing, and the wide, bipartisan support for this bill’s passage reflects this. This measure fixes a mistake sitting on the federal statutes for over sixty years, making an important contribution to the health reform efforts underway in both houses of Congress."
However, two days later, on October 23, the CBO issued a report concluding that H.R. 3596 would have little impact on either the federal budget or health care expenditures, because it believed that few health insurers are engaged in market allocation or price fixing. The CBO states:
Based on information from the Department of Justice and insurance industry experts, CBO expects that H.R. 3596 would apply to a small number of offenders ….
The CBO finds that the effect of the law on health insurance premiums is "likely to be quite small:"
H.R. 3596 could affect the costs of and premiums charged by private health insurance companies; whether premiums would increase or decrease as a result is difficult to determine, but in either case the magnitude of the effects is likely to be quite small. To the extent that insurers would otherwise engage in the prohibited practices and be prevented from doing so by enactment of this bill, premiums might be lower. (That effect is likely to be small because state laws already bar the activities that would be prohibited under federal law if this bill was enacted.) To the extent that insurers would become subject to additional litigation, their costs and thus their premiums might increase. Based on information from the Justice Department, the Federal Trade Commission, the National Association of Insurance Commissioners, consumer groups, and private attorneys, CBO estimates that both of those effects would be very small, and thus that enacting the legislation would have no significant effect on the premiums that private insurers would charge for health insurance.
The insurance industry argues that market concentration is a natural and beneficial phenomenon because if there are many small insurers then health care providers hold the balance of power and can demand and obtain higher fees. When there are only one or two insurers in a geographic market, the insurers argue, they can negotiate lower rates with providers.
I am not convinced by the insurers' arguments. Market concentration must be addressed. If market concentration is the result of collusion, then this bill is the solution. If there are legal or "natural" barriers to entry then they must be dismantled by opening markets up to competition.
Visit Professor Huhn's website on health care financing reform for links to information about proposed legislation, studies and reports, public agencies, and private organizations concerned with this issue.
