Low Medicare Advantage Competition in Majority of the US

An analysis of Medicare Advantage (MA) plan market shares finds little competition in counties across the nation, according to a report published by The Commonwealth Fund. A full 97% of the more than 2900 counties studied are considered highly concentrated markets, dominated by a small number of firms with large market share.

The researchers used data on March 2012 MA plan enrollment to determine the market concentration in 2933 counties in the US by using the Herfindahl-Hirschman Index.

“Allowing private health insurers to play a larger role in Medicare is often suggested as a way to control Medicare costs and improve quality of care,” Stuart Guterman, Senior Scholar in Residence at AcademyHealth and coauthor of the study, said in a statement. “The idea is if there are more insurers, they’ll fight for customers by lowering premiums and improving quality.”

However, the benefits of competition will only occur when there are enough insurers in a market to ensure actual competition, and Guterman points out that the findings of the study show this is not the situation in the vast majority of the country. In fact, recent merger proposals that will take the top 5 insurers in the US down to just 3 will likely only exacerbate the issue.

“In particular, recent or anticipated mergers and acquisitions among insurance companies that have large shares of Medicare business have raised concerns about how these moves might affect the MA market,” the authors wrote in the brief.

The American Hospital Association sent letters to HHS Secretary Sylvia Mathews Burwell and William Baer, the assistant attorney general for the Department of Justice’s Antitrust Division, expressing concerns about both the Anthem-Cigna and the Aetna-Humana mergers. Its primary concern about the deal between Aetna and Humana center on implications for MA competition.

“The substantial barriers to entry in the health insurance sector make it extraordinarily unlikely that existing firms could replicate the size and scope of the insurers involved in this proposed transaction,” the letter reads. “This strongly suggests that the acquisition likely would serve only to exacerbate problematic coverage and cost trends as well as produce other adverse impacts on access and innovation.”

The Commonwealth Fund report also looked specifically at MA plan enrollment in the 100 US counties with the largest Medicare beneficiaries. These counties represent nearly half (47%) of all MA plan enrollees and 38% of all Medicare beneficiaries. They found that even when these counties have a larger number of MA plans, 81% are still considered highly concentrated markets with low level so of competition.

“Millions of Americans rely on Medicare and Medicare Advantage, and their ranks will grow exponentially as baby boomers turn 65,” said Commonwealth Fund President David Blumenthal, M.D. “Now is the time for us to focus on viable ways to strengthen Medicare, but this research suggests the need to critically examine, using empirical studies, the likely results of all proposals for Medicare reform, including those relying on market forces.”