AMA calls for plan competition but might quickly regret that wish

April 1, 2010

In the arcane argot of antitrust, the debate between the American Medical Assn. (AMA) and the nation's health insurers is a case of he said/she said.

NATIONAL REPORTS-In the arcane argot of antitrust, the debate between the American Medical Assn. (AMA) and the nation's health insurers is a case of he said/she said.

The AMA fired its latest salvo in February, when it issued the eighth edition of its "Competition in Health Insurance: A Comprehensive Study of U.S. Markets." The report describes a "near total collapse of competitive and dynamic health insurance markets," which the AMA contends is increasing the cost of health coverage and warrants the United States Department of Justice (DOJ) to enforce antitrust laws more aggressively and retrospectively study health plan mergers.

America's Health Insurance Plans (AHIP) counters that the AMA data "are plagued by a number of significant limitations and appear to be unreliable" and that the force behind increasing healthcare costs isn't consolidation within the insurance industry but consolidation among hospitals and provider groups.

In 54% of metropolitan markets, a single insurer controlled at least half the market-up from 40% in 2008-and in nearly all (92%) of the metropolitan markets at least one insurer had a market share of 30% percent or more.

CONSOLIDATED INSURANCE MARKET

Health insurance "is not a vibrant marketplace," says Leemore Dafny, a professor of management and strategy at Northwestern University's Kellogg School of Management. "This industry is much more consolidated than others that encourage antitrust intervention."

Balderdash, counters AHIP. Unlike AMA data, which points to near monopolies in the nation's major metropolitan areas, AHIP says there are eight or more health insurers in each of the nation's top 40 metropolitan statistical areas.

"Health insurance plans operate in highly competitive markets across the country and consumers have numerous choices in the types of plans and in insurers," says AHIP spokesman Robert Zirkelbach. "To the extent that research has raised the question of competition as a factor in rising healthcare costs, it has pointed to consolidation among providers, not health plans."

In evidence, AHIP points to its own whitepaper and state reports, including one released in January by the Massachusetts attorney general. The report, the result of a year-long investigation, attributed the state's escalating healthcare costs to the market power of the most highly compensated providers. A report by the Center for Studying Health System Change published two days after the AMA's study highlighted a similar dynamic in California.

Robert Berenson, MD, a fellow with the Urban Institute and one of the authors of the Center for Studying Health System Change's report, says in many California markets, hospital and network consolidation have given healthcare providers so much clout that health plans have no option but to include them in their networks and pay them generous rates. Where the finger pointing will ultimately lead is anybody's guess.

Dafny says the DOJ rarely intervenes to untangle mergers that have already taken place, so the AMA's call for retrospective review may be a long shot. If the federal government decides to intervene, she says, it would probably do so by reducing barriers to entry so more insurance competitors could break into tight markets.

If new insurance players enter a certain market, existing players might have to work harder to rein in their costs, which, Dr. Berenson says, could have a paradoxical effect on the AMA.

"If the AMA gets what it wants-more competition in the insurance industry-you're going to see downward pressure on physician prices because right now there's no pressure on those rates in a lot of markets."