Ransom & Johnson: Fighting health insurance monopolies  

This past summer, MedChi applauded Maryland Attorney General Brian E. Frosh’s announcement that his office had joined the U.S. Department of Justice and other state attorneys general in a lawsuit to block Anthem’s proposed acquisition of Cigna and Aetna’s acquisition of Humana, alleging that the transactions would increase concentration and harm competition across the country.

MedChi had been urging Frosh to take this step for over a year, stemming from our long-standing concern about extreme concentration in the health insurance market. The suit against Anthem and Cigna claims the merger would substantially reduce competition for millions of consumers who receive commercial health insurance coverage from national employers throughout the United States; from large-group employers in at least 35 metropolitan areas, including New York, Los Angeles, San Francisco, Denver, and Indianapolis; and from public exchanges created by the Affordable Care Act in St. Louis and Denver.

The complaint also alleges that the elimination of Cigna threatens competition among commercial insurers for the purchase of health care services from hospitals, physicians and other health care providers. The merger would eliminate substantial head-to-head competition in all these markets. It would remove the independent competitive force of Cigna, which has been a leader in the industry’s transition to value-based care.

The likely effects for consumers of continued mergers in the industry are price increases, reduced quality in the form of smaller networks (since carriers will have less need to compete on the basis of physician availability. The American Medical Association expects that the Medicare Advantage offerings may be particularly damaged.

Although the carriers in the current DOJ lawsuit are relatively small players in the Maryland market, which is largely dominated by two other behemoths, United Healthcare and Carefirst, (which themselves have been involved in either actual or planned mergers) MedChi nevertheless believes that important issues are at stake here that call for the involvement of our attorney general.

For at least 15 years, MedChi has brought attention to the serious problem of excessive concentration in the health insurance market as Maryland’s own health insurance market shows every sign of excessive concentration. Market concentration is measured with the Herfindahl-Hirschman Index (HHI), a well-established tool of antitrust regulators for determining market concentration. Using the HHI, Maryland has a number of 2970 (numbers above 2500 indicate a “highly concentrated” market) for the overall state combined HMO/PPO/POS markets, with CareFirst having an overall market share of 48 percent  to United’s 16 percent, with the most extreme concentration being in the Salisbury MSA, which has a HHI of 4263.

If separated out by individual product and MSA, the results are even more disturbing, with, e.g., the HHI numbers for the HMO market ranging from 4083 in the Hagerstown-Martinsburg MSA to an astonishing 5165 in Salisbury, with CareFirst having a market share above 50 percent  in all MSAs.

The situation is somewhat better in the PPO market, perhaps because there are additional players of size other than the “big two.” In the Hagerstown market, Aetna and Highmark are the two biggest carriers, and in Cumberland, CareFirst and Highmark. Both Hagerstown and Cumberland have HHI scores of below 2500, illustrating the AMA’s point that the best source of competition is from already established carriers in neighboring areas.

Elsewhere in the state, the HHI numbers are above 2500, with Salisbury again showing the most extreme concentration with an HHI number of 5428. In the Point of Service (POS) market, the data is less extreme. Rather than a clearly dominant single carrier, the overall state figures show a two- carrier dominated market with United having a slightly larger market share than CareFirst (51 percent  versus 47 percent ). The HHI scores are 4700 in all POS markets.

If these two mergers were to be approved, it would reduce from five to three the number of large national health insurers in the nation. MedChi and the AMA wrote letters to the Justice Department expressing concern regarding the specifics of those mergers, as well as the broader issues in play.

Although the carriers involved are relatively small players in Maryland (with the exception of Aetna in certain parts of the state), the mergers could have a substantial impact on Maryland and, in addition, the principles outlined through the judicial process could be used to review similar concentrations of market power in this state. Because of the high barriers to entry in the health insurance market, the best source of competitive pressure against the formation of monopolistic conditions is the entry of new insurers into a neighboring market.

We strongly urge Maryland consumers and policymakers to support the Attorney General’s action and to join with other concerned parties in opposing these mergers. In addition, Maryland needs strong leadership from policymakers to independently investigate the lack of a competitive market for health insurance in Maryland.

Stephen Johnson, Esq., is general counsel of MedChi, the Maryland State Medical Society. Gene M. Ransom III, Esq., is CEO of MedChi. Contact him at [email protected] and on Twitter @generansom