Market concentration tied to higher premiums in ACA markets, study finds
- Insurance premiums in Affordable Care Act marketplaces with local payer monopolies were 50% higher than premiums where more than two insurers were present, a new analysis in Health Affairs finds.
- Fueling the difference were big premium hikes for the monopolist insurers' lowest-cost plans — $100, on average, in markets where they had not offered the lowest-cost silver plan, and $116 in markets where they had. Nearly 70% of silver plan premium increases in highly consolidated markets between 2016 and 2018 were due to monopolist payers raising premium prices on their existing low-cost plans.
- Understanding how competition affects health plan enrollment, costs and quality could influence future policy and reforms in the individual marketplace, according to the study.
Ups and downs in premium rates are often attributed to fluctuations in a marketplace's risk pool. While an increase in numbers of sicker beneficiaries can impact premiums, this study suggests insurer consolidation also plays a role.
"Because most enrollees select low-cost plans, the monopolist's pricing results in higher costs for the government, because its subsidies are linked to the second-lowest-cost silver plan," wrote Jessica Van Parys, an assistant professor of economics at Hunter College, City University of New York, and the study's author.
She suggested the ACA's price-linked subsidy policy may have contributed to the problem by permitting monopolist insurers to raise their prices above what a fixed-price subsidy market would allow. "The concern going forward is that monopolist insurers will have leverage to propose large premium increases, and state insurance regulators may approve those requests to keep the markets stable," Parys said.
The study adds to growing research showing provider and payer consolidation is affecting healthcare prices and costs, and thus access.
A 2017 American Medical Association report found that nearly 90% of markets in the U.S. have at least one insurer with market share of 30% or higher. Anthem, a major Blues payer, had the highest market share in 82 metropolitan areas.
Overall, 69% of markets were "highly concentrated," according to the report, which noted the share of markets with a single dominant insurer rose 8% over the prior two years.
Another California study found prices for hospitals, physician services and ACA premiums were higher in areas with higher consolidation. Specifically, inpatient and outpatient prices in highly-concentrated northern California were 70% and between 17% and 55% higher, respectively, than in less-concentrated southern California in 2017. ACA premiums were 35% higher in the north versus the south in 2016.
This year has seen several mega-deals in the insurance space. CVS is in the process of acquiring Aetna for about $70 billion. If approved, the merger would create a company with roughly $245 billion in annual revenues.
And Cigna is attempting to buy pharmacy benefit manager Express Scripts for $67 billion. The March announcement came on the heels of Express Scripts' reveal of a partnership with Walgreens Boots Alliance to expand group purchasing of specialty pharmaceuticals. That deal has hit a snag, however, with Cigna investor Carl Icahn lobbying against it.