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It is clear that health insurance markets are broken. A tsunami of health insurance mergers has led to such high levels of concentration in insurance markets that there are now only one or two dominant insurers in many states. And these local monopolies go unchallenged because there are substantial barriers to entry and expansion for other insurers.
Lack of competition has led to growing insurer profits, increased costs and reduced coverage for enrollees, an epidemic of deceptive and fraudulent conduct, and rapidly escalating costs. More than 46 million Americans are now uninsured, and premiums have grown 130 percent over the last 10 years. Health insurers engage in an endless list of deceptive, fraudulent, and unfair practices that deny millions of consumers adequate coverage. Meanwhile, 10 of the largest health insurers saw their profits balloon from $2.4 billion in 2000 to $13 billion in 2007.
The accompanying data shows that one or two carriers dominate many state insurance markets. One carrier controls more than half the market in at least 17 states. Two carriers control at least half the market in at least 22 more. And the American Medical Association found in 2008 that insurance markets are highly concentrated in 94 percent of metropolitan statistical areas, and that a single carrier controlled at least 30 percent of the insurance market in 89 percent of these areas.
As a result, health insurance interests come before Americans’ health care needs. Health insurers in markets that are dominated by only a few firms can maximize the rates they charge employers and families. Employers are then unable to afford meaningful health insurance options for their employees or, in the case of many small businesses, are unable to offer their employees coverage at all. And most Americans seeking health insurance in the individual market never purchase coverage.
At the same time, state insurance commissioners lack the resources and capacity to protect consumers’ interests and police this anticompetitive and deceptive conduct. Researchers in a recent review of 33 states found that in states with the most highly concentrated insurance markets, state regulators had taken no significant consumer protection actions against health insurers in the last five years. These insurers are able to offer poor coverage and deny care to inflate profits, as well as maintain effective monopolies, without fear of intervention.
Real health care reform must encourage real competition among health insurers—competition that benefits patients, employers, and health care providers. A health insurance exchange with a public health insurance option and real health insurance market reforms will force insurers to compete on price, value, and service. At the same time, reform must also include comprehensive consumer protections and meaningful enforcement so that the promises of reform are fully realized.
Download this memo (pdf)