By Robert B. Barnett Jr., J.D.
According to a new GAO report, the introduction of individual exchanges through the Affordable Care Act, which was thought to foster competition among insurers, has had little effect on the U.S. healthcare market in terms of market concentrations, which remains concentrated in a small number of health insurers.
The historic trend in the U.S. healthcare market of having a small number of private insurers enrolling most people in the market continued in 2015 and 1016, the latest years for which data was available, according to a new Government Accountability Office (GAO) report. The Affordable Care Act (ACA) (P.L. 111-148) has, if anything, only increased that concentration, which is contrary to what many believed would happen when the law was enacted (GAO Report, GAO-19-306, March 2019).
Factors that have typically been identified as responsible for the high market concentration are consolidation among existing providers (mergers and acquisition) and high entry costs, which include the inability of small insurers to negotiate the same discounts as larger insurers. The ACA was thought to foster competition, as exchanges gave insureds a much-improved ability to compare and select among the health plans competing on the exchanges. The reality, however, has apparently been quite different.
General insurance market. Similar to prior years, a single insurer held at least 50 percent of the market in 28 states in 2016. In seven states, they held more than 80 percent. To use one example, although West Virginia had 15 insurers in 2016, Highmark held 91 percent of the market. In 35 states, the largest insurer has been the same since 2011. States that had high concentrations in 2014 generally remained highly concentrated in 2016. On average, each state had 16 insurers in 2016. The three largest, however, cumulatively held at least 80 percent of the market in 37 states, which was consistent with the 2011-2014 findings. At the other end of the market, on average, 12 of the 16 insurers in each state held less than 5 percent market share.
The GAO then examined the ACA market exchanges, breaking it down into the individual market, the small employer market, and the large employer market.
Individual market exchanges. The states’ individual market exchanges, which represent 57 percent of those enrolled in the overall individual market in 2016, are also concentrated among a small number of insurers. On average, between three and five issuers participated in the individual market exchanges. The three largest insurers, however, held at least 80 of the exchange market in at least 46 states. In Wisconsin, for example, the three largest insurers held 92 percent market share across the 16 rating areas. Furthermore, as the market concentration continued, the exchanges saw more insurers drop out. The number of states with three or fewer insurers, on average, increased from 16 states in 2015 to 32 states in 2017. Also, generally, the rich got richer. From 2015 to 2017, in 32 states, the largest exchange issuer saw a median increase in its market share of 13 percentage points.
Small group markets. The GAO reported similar findings in the small group market. On average, eight insurers participated in each state in 2016. The three largest issuers, however, cumulatively held 80 percent of the market in about three-fourths of the states.
Large group markets. Once again, the GAO found high concentrations in the large group markets. On average, there were 10 insurers participating in each state in 2016. The three largest insurers held at least 80 percent of the market in 43 states, which was consistent with prior years’ findings.
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