Focus and Health Care

Michigan among least competitive for commercial health insurance

Consumers suffer when the choices are too few.

November 7, 2014
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From the Medical Mile in Grand Rapids to the University of Michigan Health System in Ann Arbor, Michigan offers a number of health care options, yet it is considered one of the top concentrated markets in terms of commercial health insurance.

The state of Michigan was ranked the third least-competitive commercial health insurance market last month by the American Medical Association, a national organization dedicated to shaping a healthier future for the country, in the release of its 13th edition of Competition in Health Insurance: A Comprehensive Study of U.S. Markets.

Intended to aid researchers, regulators and policymakers, the AMA’s report helps to identify markets where mergers and acquisitions among health insurers may be harmful to patients, physicians and employers, according to a press release.

Using data from 2012 through commercial enrollment in fully and self-insured plans, and participation in consumer-driven health plans, the AMA’s study provides an analysis of the market concentration in the health insurance industry for 388 metropolitan areas, all 50 states and the District of Columbia.

The 2014 update to the health insurance competition study noted a lack of competition in 72 percent of metropolitan areas, with a single health insurer holding a market share of 50 percent or more in 17 states, and two health insurance carriers have a combined share of 50 percent or more in 45 states, according to the association.

Dr. Robert M. Wah, president of AMA, said the organization is concerned that a single health provider held at least 50 percent market share of the commercial health insurance market in 41 percent of metropolitan areas throughout the country.

“The dominant market power of big health insurers increases the risk of anti-competitive behavior that harms patients and physicians, and presents a significant barrier to the market success of smaller insurance rivals,” said Wah in a written statement.

Due to high levels of market concentration, Michigan was ranked third in the top 10 least-competitive commercial health insurance markets, behind Alabama and Hawaii. Other low-competitive markets included Delaware, Louisiana, South Carolina, Alaska, Illinois, Nebraska and North Dakota.

As of Jan. 1, 2012, Blue Cross Blue Shield of Michigan held 67 percent of total market share in the state, while Spectrum’s Priority Health held an overall 9 percent for total insurance products, according to the 2014 AMA update. The combined insurance products included health maintenance organizations, point-of-service, preferred provider organizations and consumer-driven health plans.

Rick Murdock, executive director of Michigan Association of Health Plans, said a low-competitive insurance market has serious and long-lasting implications for consumers.

“If you don’t have a competitive environment, then you are likely to have premiums and cost of insurance products higher than they need to be. If you don’t have competition, if you don’t have meaningful choice, then the dominant carriers don’t have the pressure to keep prices competitive,” said Murdock. “Their concern at that point is pricing it more in the manner to keep their competitors out of range. It doesn’t necessarily bode well for providing the lowest cost potentially available.”

The 2014 update to the AMA study noted that, in the Grand Rapids-Wyoming metropolitan area, BCBSM held 43 percent of the market, while Priority followed closely with 38 percent. BCBSM also dominated the Muskegon-Norton Shores region with 56 percent of shares, while Priority held 31 percent; however, in the Holland-Grand Haven metropolitan area, Priority holds 48 percent of market shares, while BCBSM has 35 percent.

“Priority Health is a very strong competitor to Blue Cross, so their dominance isn’t as great on the west side as it might be in the rest of the state,” said Murdock in reference to variations across Michigan. “When you look at it statewide and you use the measures the AMA is looking at … it’s a calculation that is made based on the covered lives, different carriers, penetration and percentages. It is an objective measure that is used, and if the scale is too high, then it is an indication there is a lack of competition.”

Michigan also was ranked the third least-competitive commercial health insurance market in the 11th edition of AMA’s Competition in Health Insurance study back in 2012. The historical issue of competition could be attributed to a number of opportunities provided to a dominant carrier based on operating under different statutory framework and contracting practices, according to Murdock. Two reforms that have contributed to a more equal playing field include banning most-favored-nation clauses, and no longer having insurance carriers organized under Public Act 350, which was enacted in 1980.

As a nonprofit corporation promoting the interest of member health plans, Michigan Association of Health Plans has a goal of fostering competition in the market to become one of the top 10 competitive states in the country by 2020. The relative ranking as a less competitive commercial market is a longstanding, multi-faceted problem, and is only beginning to see a small difference due to the health care insurance exchange, according to Murdock.

“It is a small piece of the market, admittedly, but you are starting to see not only more competition but also more choice on the insurance exchange,” he said. “We are seeing from year one to year two, folks are getting that experience. They are sharpening their pencils and in some cases reducing their rates where they want to be more competitive. So we are starting to see that in part of the market largely because of that transparency.”

Although there has been some progress, Murdock said there are a few more reforms that need to take place, such as dealing with historical reimbursement with providers, and cost-shifting with the uninsured.

“It is not going to change overnight. We are hopeful to continue pushing additional reforms. Part of it will be what we have to do with insurance code, part of it is contracting practices of various purchasers and more transparency along the way,” he said. “We have this objective within our industry that by 2020 we can change this phenomenon and Michigan can perhaps be one of the 10 most competitive states, but that will take a lot of concentrated effort.”

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