AcademyHealth’s National Health Policy Conference Washington DC | February 6, 2018 Market Consolidation in the US Health Insurance Industry Bradley Herring, PhD Associate Professor
2015- 2017’s Proposed Mergers to Increase Insurance Market Concentration Taken from : Weaver, 2015, “Insurers Playing a Game of Thrones,” Wall Street Journal. 2
Joint Distribution of Insurer (x-axis) Versus Hospital (y-axis) HHI Measures Note: Each dot is an employer in the 2006-2011 KFF/HRET data. Taken from : Trish E and Herring B, 2015, “How Do Health Insurer Market Concentration and Bargaining Power with Hospitals Affect Health Insurance Premiums ?” Journal of Health Economics. 3
Competitive: HHI < 15 (x 100) Moderately Concentrated: 15 < HHI < 25 Highly Concentrated: 15 < HHI < 25 Taken from : Trish E and Herring B, 2015, “How Do Health Insurer Market Concentration and Bargaining Power with Hospitals Affect Health Insurance Premiums ?” Journal of Health Economics. 4 Insurer Concentration: 3.3% obs .under 15 HHI, 43.4% 15-25 HHI, 29.0% 25-35 HHI, and 24.2% over 35 HHI.
How Are Premiums Determined? Increasing Hospital Concentration → Lower Overhead & Higher Overhead & Negotiate Higher Provider Prices Moderate Provider Prices Provider Prices (But Can’t Bargain) (Bilateral Bargaining) and Add Administrative Overhead Lower Overhead & Higher Overhead & Lower Provider Prices Lower Provider Prices (Already Competitive) (Already Competitive) Taken from : Trish E and Herring B, 2015, “How Do Health Insurer Market Concentration Increasing Insurer Concentration → and Bargaining Power with Hospitals Affect Health Insurance Premiums ?” Journal of Health Economics. Note : Administrative overhead comprised of insurer profits and other administrative costs. 5
How Are Premiums Determined? Increasing Hospital Concentration → Lower Overhead & Higher Overhead & Negotiate Higher Provider Prices Moderate Provider Prices Provider Prices (But Can’t Bargain) (Bilateral Bargaining) and Add Administrative Overhead Lower Overhead & Higher Overhead & Lower Provider Prices Lower Provider Prices (Already Competitive) (Already Competitive) Taken from : Trish E and Herring B, 2015, “How Do Health Insurer Market Concentration Increasing Insurer Concentration → and Bargaining Power with Hospitals Affect Health Insurance Premiums ?” Journal of Health Economics. Note : Administrative overhead comprised of insurer profits and other administrative costs. 6
How Are Premiums Determined? Increasing Hospital Concentration → Lower Overhead & Higher Overhead & Negotiate Higher Provider Prices Moderate Provider Prices Provider Prices (But Can’t Bargain) (Bilateral Bargaining) and Add Administrative Overhead Lower Overhead & Higher Overhead & Lower Provider Prices Lower Provider Prices (Already Competitive) (Already Competitive) Taken from : Trish E and Herring B, 2015, “How Do Health Insurer Market Concentration Increasing Insurer Concentration → and Bargaining Power with Hospitals Affect Health Insurance Premiums ?” Journal of Health Economics. Note : Administrative overhead comprised of insurer profits and other administrative costs. 7
How Are Premiums Determined? Increasing Hospital Concentration → Lower Overhead & Higher Overhead & Negotiate Higher Provider Prices Moderate Provider Prices Provider Prices (But Can’t Bargain) (Bilateral Bargaining) and Add Administrative Overhead Lower Overhead & Higher Overhead & Lower Provider Prices Lower Provider Prices (Already Competitive) (Already Competitive) Taken from : Trish E and Herring B, 2015, “How Do Health Insurer Market Concentration Increasing Insurer Concentration → and Bargaining Power with Hospitals Affect Health Insurance Premiums ?” Journal of Health Economics. Note : Administrative overhead comprised of insurer profits and other administrative costs. 8
What We Did and Found in Trish and Herring ( JHE 2015) ► Regressed fully-insured employment-based premiums (KFF/HRET 2006-2011) onto two Insurer HHIs (one capturing overhead, one capturing provider prices) and a Hospital HHI ► Found for an 800 point HHI increase (e.g., “five -to-four ” merger of equal-share firms): ► Insurer HHI EMP (overhead vs. employers): 1.7% increase ($78) ► Insurer HHI HSP (prices vs. hospitals): 1.9% decrease ($90) ► Hospital HHI (prices vs. insurers): 1.5% increase ($67) ► Implies that insurer consolidation reduces provider prices, but insurers don’t pass those savings along to consumers and instead increase overhead (but at least not any further) Taken from : Trish E and Herring B, 2015, “How Do Health Insurer Market Concentration and Bargaining Power with Hospitals Affect Health Insurance Premiums?” Journal of Health Economics. 9
Insurer Participation on ACA Exchange Marketplaces: 2018 1 insurer (26%) 3+ insurers (48%) 2 insurers (27%) Taken from : Kaiser Family Foundation, 2018, Insurer Participation on ACA Marketplaces, 2014-2018. 10
Insurer Participation on ACA Exchange Marketplaces: 2014 1 insurer (6%) 2 insurers (18%) 3+ insurers (76%) Taken from : Kaiser Family Foundation, 2018, Insurer Participation on ACA Marketplaces, 2014-2018. 11
Additional Considerations for Various Insurance Markets ► Fully-Insured Group Market ( earlier slides ) ► Individual Exchange Marketplaces ( earlier slides ) ► Why was initial entry by insurers low? Why did insurers exit? ► Implications worse than group market: no provider price negotiation, tax credit’s effect ► Self-Insured Large Group Market: ► Relatively little known about this TPA market (remarkably, given its size) ► Medicare Advantage: ► Heavy local concentration, number of insurers lowers bids; compare/contrast to Part D ► Medicaid Managed Care Organizations (MCOs) ► Relatively little known (again, remarkably, given its size); often unobservable bidding 12
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