Approximately 73 percent of health insurance markets in the United States’ metropolitan statistical areas (MSAs) are highly concentrated, according to a 2021 report by the American Medical Association.¹ This marks a significant increase over decades past: in 2001, slightly less than half of the 40 largest MSAs were highly concentrated.² The AMA, which longitudinally tracks health insurance market competition, published several statistics shedding light on the growing concentration in health insurance markets.   

Between 2014 and 2020, over a quarter (26 percent) of health insurance markets that were not considered highly concentrated evolved to be highly consolidated. In 2020, at least one insurer was found to have a market share of 30 percent or greater in 91 percent of MSA-level markets. A single insurer’s share was at least 50 percent in nearly half of markets (46 percent). The three largest health insurers — UnitedHealth, Anthem, and Aetna — have remained the same between 2014 and 2020, and largely continue to hold the same percentage of market shares (15, 12, and 11 percent, respectively, in 2020). But within individual states and regions, mergers and acquisitions have furthered local consolidation, with complex implications.¹ 

Some analysts worry about the effects of concentrated health insurance markets on consumers. There is evidence that premiums rise when competition between insurers disappears with the consolidation of health plans.³ Dafny et al. studied the 1999 merger of Prudential and Aetna, one of the largest recent mergers, which had differential impacts on 139 geographic health care markets across the United States. Researchers found that premiums rose by approximately 7 percentage points between 1998 and 2007, which translates into approximately $34 billion in extra annual premiums.⁴  

The study also found evidence that the Aetna-Prudential merger reduced physician earnings by approximately three percent, suggesting that the increased bargaining power of consolidated health insurance can lead to reduced payouts for physicians.⁴ Several studies have shown that concentrated insurers do promote lower hospital prices, but that these savings are not passed on to consumers in the form of lower premiums, as shown by Dafny et al.^4,5 Still, it is possible that as insurers merge, hospitals may be compelled to raise their quality as a means to maintain bargaining power in their negotiations with insurers, or to preserve their in-network status. Hanson and colleagues found preliminary evidence of this in a study of more than 25,000 observations at 3,154 hospitals over the course of eight years. However, the authors based their conclusions about improved patient experience on slight changes in patient satisfaction ratings (equivalent to moving from the 41st percentile to the 45th percentile in the distribution of patient rating scores across hospitals), and furthermore, patient satisfaction may be an inadequate proxy of more clinically specific quality ratings.⁵ 

Many analysts have proposed new policy interventions to ensure proper scrutiny of the impact of potential mergers. Mobilizing existing antitrust laws are among some of the suggestions. Through the court system, governments can exercise some control over markets, as did the Department of Justice and attorneys general from multiple states in the proposed Anthem-Cigna merger. Anthem’s proposed $54 billion acquisition of Cigna would have been the largest merger in the history of the health-insurance industry, but the acquisition was blocked in 2017 by the United States District Court for the District of Columbia, which argued that the merger would “substantially lessen competition, harming millions of American consumers, as well as doctors and hospitals” (this ruling was upheld in an appeal).⁶ As the AMA has noted in its analysis of the case, Anthem did not rebuff accusations that it would lower provider reimbursements, but instead argued that those savings would result from efficiencies, which would be transferred to consumers as lower premiums. However, the courts did not see these efficiencies as sufficient justification to rule in favor of the defendants. Thus, there are prominent concerns that insurance market consolidation can result in competitive harm to consumers and providers of care, even where they may contribute to efficiency, and ongoing analysis is necessary to monitor their effects as the trend toward consolidation continues. 

References 

1. American Medical Association Division of Economic and Health Policy Research. Competition in Health Insurance: A Comprehensive Study of U.S. Markets. American Medical Association. Published 2020. https://www.ama-assn.org/system/files/competition-health-insurance-us-markets.pdf 
2. Dafny L, Duggan M, Ramanarayanan S. Paying a premium on your premium? Consolidation in the US health insurance industry. Am Econ Rev. 2012;102(2):1161-1185. doi:10.1257/aer.102.2.1161 
3. Trish EE, Herring BJ. How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums? J Health Econ. 2015;42:104-114. doi:10.1016/j.jhealeco.2015.03.009 
4. Guardado JR, Emmons DW, Kane CK. The price effects of a large merger of health insurers: A case study of UnitedHealth-Sierra. Hmpi.org. http://hmpi.org/wp-content/uploads/2017/02/HMPI-Guardado-Emmons-Kane-Price-Effects-of-a-Larger-Merger-of-Health-Insurers.pdf  
5. Hanson C, Herring B, Trish E. Do health insurance and hospital market concentration influence hospital patients’ experience of care? Health Serv Res. 2019;54(4):805-815. doi:10.1111/1475-6773.13168  
6. United States District Court for the District of Columbia. US and Plaintiff States v. Anthem, Inc. and Cigna Corp. United States Department of Justice. https://www.justice.gov/opa/file/877886/download