Private Health Insurance:

Research on Competition in the Insurance Industry

GAO-09-864R: Published: Jul 31, 2009. Publicly Released: Aug 31, 2009.

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John E. Dicken
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Health care providers and members of Congress have raised concerns that consolidation in the private health insurance industry may be resulting in less competitive markets and contributing to rising health insurance rates paid by consumers and employers. However, measuring the extent of changes in market competition over time or the effects of changes is challenging. In particular, reliable, longitudinal data to measure concentration, that is, the number of competitors and their relative market share, are only available on health maintenance organizations (HMO) but not on preferred provider organizations (PPO) or other insurance products that may comprise the market. Further, data on health insurers are not available at all geographic levels. Despite these challenges, researchers have used the data available to study competition in health insurance markets, typically using one of two measures of competition: (1) HMO market concentration or (2) the number of HMOs in a market. Researchers acknowledge that market concentration and the number of competitors are not perfect measures of competition in private health insurance markets and that there are limits to the conclusions to be drawn from studies that rely on the available data. This report summarizes the findings of peer-reviewed research on concentration in private health insurance markets and the relationship between the level of competition and other variables, such as premium prices and provider reimbursement rates.

Our review found articles that measured the extent of concentration in private health insurance markets or focused on the relationship between competition in these markets and other variables, though the findings of these studies should be interpreted with caution. Several articles identified through our review examined the extent of concentration in private health insurance markets, though this research had limitations including, for example, relying on state-level data when the more appropriate geographic focus may be at a more local level. One study found that the HMO industry became more consolidated nationally from 1994 to 1997. According to the study, several national consolidations occurred during this period and contributed to the market share of the top five national firms growing from 43.2 percent in 1994 to 49.9 percent in 1997. The study found that the effects of these national consolidations on concentration varied significantly, with some local markets experiencing no change and others facing increases significant enough to raise antitrust concerns. While no other studies measured the extent of changes in the concentration of markets over time, several studies measured the concentration of local health insurance markets (defined as a state, metropolitan statistical area (MSA), or county depending on the study) at a point in time. For example, one study measured commercial health insurance concentration at the state level. The study reviewed data on HMO and PPO products for insured and self-insured employer funding arrangements across 48 states and the District of Columbia. The study found that market concentration at the state level in 2003 was relatively high by federal standards11 and that the top three firms typically dominated each market. The study noted that data were available at the state level only, even though some states include multiple geographic markets and some geographic markets cross state lines, and that the study results should be interpreted with caution. In addition to measuring concentration, research we reviewed generally focused on examining the relationship between the level of competition in private health insurance markets (or "competition") and several variables--premium rates, rates paid to health care providers, utilization of medical services, quality of care, efficiency, and insurer profits. The results of this research should also be interpreted with caution because of data limitations and varying methodologies. For example, this research focused predominately on HMOs--and often did not include data on PPOs or other insurance products. Further, the research studies we reviewed defined geographic markets differently and controlled for different market characteristics.

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