Competition in health care research

The Division of Economic and Health Policy Research conducts independent research on competition in health insurance markets. He also began conducting research on pharmacy benefit management (PBM) markets.

A key public policy question is whether health insurance markets are competitive or whether insurers have market power that can harm consumers and providers of health care. A useful indicator of competition and market power is market concentration. The US Department of Justice and the Federal Trade Commission consider concentration in their evaluation of proposed mergers between firms.

One of the division’s most significant efforts is the annual Health insurance competition (CHI) study. This annually updated survey is the only publication of its kind. It is based on an analysis of unique enrollment data from a single data source for health insurers in all US states and metropolitan statistical areas (MSAs). The department has also conducted analyzes of past and proposed mergers between health insurers.

This year, the department began conducting surveys of PBM markets. Using unique life recording data with commercial drug coverage from the same data source used for its CHI study, the department published a paper as part of Perspectives on Policy Research (PRP), which aims to shine a light on this understudied market.

The 2023 Update Competition in Health Insurance: A Comprehensive Study of US Markets (PDF) presents 2022 data on the degree of competition in the commercial health insurance and Medicare Advantage markets. It aims to help identify areas where consolidation involving health insurers could cause anticompetitive harm to consumers and care providers.

The study reports the two largest insurers’ market shares and levels of concentration (HHI) for US state and MSA level markets

Key findings from the 2023 update include:

Trade markets

  • Seventy-three percent (277) of MSA-level markets were highly concentrated (HHI>2500) in 2022 – an increase from 71% in 2014.
  • The average HHI of MSA-level markets is 3,496 in 2022.
  • Fifty-seven percent of markets experienced an increase in the HHI between 2014 and 2022. Among these markets, the average increase was 575 points.
  • Fifty-three percent of markets that were already highly concentrated in 2014 will become even more concentrated by 2022.
  • Of the markets that were not highly concentrated in 2014, 29% had a large enough increase in HHI to place them in the highly concentrated category by 2022.
  • In 90% (341) of MSAs, at least one insurer had a commercial market share of 30% or more, and in 48% (184) of MSAs, a single insurer’s share was at least 50%.
  • Insurer Blue Cross Blue Shield (BCBS) had the largest state-level market share in 41 states.
  • A BCBS insurer had the largest market share at the MSA level at 82% (314) of MSAs.
  • Elevance Health (formerly Anthem) had the largest market share at the MSA level at 22% (83) of MSAs.
  • Nationally, UnitedHealth Group is the largest commercial health insurer in the US, and Centene is the largest insurer on the exchanges.

Maps of the survey

Medicare Advantage Marketplaces

  • Seventy-one percent (271) of MSA-level markets are highly concentrated (HHI>2,500) in 2022, down from 87% in 2017.
  • The average HHI of MSA-level markets is 3,183 in 2022.
  • In 90% (344) of MSAs, at least one insurer had a market share of 30% or more, and in 31% (118) of MSAs, a single insurer’s share was at least 50%.
  • Nationally, UnitedHealth Group is the largest health insurer in the United States
  • UnitedHealth Group had the largest market share at the MSA level in 42% (161) of MSAs, and Humana was the largest in 22% (83) of MSAs.

Maps of the survey

Using new data from 2020 and 2021 on the lifetime of commercial drug coverage and PBMs used by insurers to fulfill five PBM functions, this paper is titled Competition in Commercial PBM Markets and Health Insurer Vertical Integration with PBMs: 2023 Update. (PDF) presents a descriptive analysis of PBM markets and the provision of PBM services to health insurers. It reports the ten largest commercial PBMs and drug insurers in the US nationally. The paper also summarizes levels of concentration (HHI) of PBM markets at the state and MSA levels and presents the two largest PBM market shares and the HHI for all markets at the state level. Finally, it quantifies the degree of vertical integration of health insurance companies with PBMs.

Key findings from the paper include:

  • Nationally, in 2021, the top four PBMs [Express Scripts, OptumRx, CVS Health (owner of CVS Caremark and Aetna Pharmacy Management) and Prime Therapeutics] provides discount negotiation services for a total of 68% of commercial drugs. Express Scripts was the largest with a 21% share. The results are similar for retail network management and claims resolution.
  • PBM shares nationally were also broadly similar between 2020 and 2021. The exception was CVS Health, whose share increased from 9% to 16% in rebate negotiations and retail network management as a result of the Aetna acquisition.
  • Consequently, the collective share of the largest four PBMs increased from 64% in 2020 to 68% in 2021.
  • For the other two PBM functions — formulary management and benefit design — about 36% of drug life is managed by insurers “in-house.” For the first three PBM functions (above), about 1% to 3% of lives are managed in-house.
  • In terms of local competition among PBMs providing rebate negotiation, retail network management, and claims resolution, the average HHI in states is about 3,700 and in MSAs it is about 4,100.
  • Over 80% of states and MSAs are highly concentrated in these 3 PBM functions, and each of these fractions has increased since 2020 as a result of the Aetna-CVS merger.
  • Nationally, 70% of commercial drug lives are with a vertically integrated insurer. Although the state and MSA averages are somewhat lower (63% and 65%), in some states/MSAs only about 5% of lives are vertically integrated, while in others almost all are.

The AMA conducted analyzes (see below) of the likely impact that the blocked Anthem-Cigna and Aetna-Humana mergers would have on the commercial markets and of the Aetna-Humana merger on the Medicare Advantage markets. The analyzes found that any of the mergers would likely be anticompetitive in many U.S. markets

Read more about the AMA’s successful effort to block the Anthem-Cigna and Aetna-Humana merger.

This paper (PDF) examines the relationship between health insurance market concentration and prices. This is a case study from the 2008 merger between UnitedHealth Group and Sierra Health Services.

It found that premiums for health plans in the Nevada marketplaces increased 13.7 percent after the merger. The findings show that the merging parties used the market power gained by the merger.

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