Health Affairs: Larger market share gives negotiation power to insurers but consumer benefits unclear
Insurance companies that have market shares of 15% or higher are able to negotiate significantly lower prices for medical services, according to a new study published in Health Affairs.
On average, insurers with large market shares paid rates that were 21% lower than the rates negotiated by insurers with small market shares, even when both insurers were paying the same providers.
In order to lower prices, insurers needed to have larger market shares when negotiating with larger provider groups than they did when negotiating with smaller provider groups.
Insurer mergers, especially mergers between large companies, tend to garner a great deal of attention as experts try to understand how such mergers will affect healthcare costs. This study by Harvard Medical School researchers underscores the strength wielded by large insurers in terms of negotiation power.
Larger provider groups are also known as tough negotiators, and with more and more physician practices consolidating, these groups represent a challenge for insurers, especially those insurers with lower market shares.
Taking into consideration the pending Aetna-Humana and Anthem-Cigna mergers, a heightened ability to negotiate with providers has important repercussions. It may be health insurance megamergers would help consumers by driving the costs of care down, a possibility that contradicts the American Medical Association’s claim that such mergers would threaten healthcare affordability.
The researchers, however, advise that their study results do “not necessarily imply that relaxing the antitrust regulation of insurer mergers is an appropriate policy response to provider consolidation,” as other factors are also at work. In addition, it is not known whether savings are passed along to plan beneficiaries.