Health insurance will be either revitalized by the private sector or disciplined by the public sector, because current trends cannot be sustained.
Competition drives innovation and efficiency in the larger economy, and for decades the United States has sought to use competition to motivate improvements in the health care system's performance. But competition requires competitors. The emergence of managed care in the 1980s was accompanied by the creation of hundreds of health insurance plans -- mostly health maintenance organizations (HMOs) -- which forced the incumbent indemnity insurers to reduce their costs or lose their customers. The subsequent senescence of managed care has been accompanied by an equally remarkable shrinkage in the number of competing health plans, as small firms sold out to their larger rivals and as even some of the industry's biggest names disappeared in a wave of mergers and acquisitions. In the past year, for example, UnitedHealthcare has acquired Oxford Health Plans, and Anthem has announced the acquisition of WellPoint, creating megaplans with twenty-two million and twenty-eight million enrollees, respectively.
In this paper James Robinson presents new data on the consolidation of the insurance industry in fifty states and jurisdictions, highlighting the dominance of a few firms in each market. Robinson documents the dramatic increases in premiums and profits enjoyed by the leading firms during the past four years but notes the change in pricing dynamics that may dampen Wall Street's enthusiasm. Competition without competitors will not deliver the desired incentives for health care improvement, and Robinson argues that the industry must undergo rejuvenation through new firms and products or face increased regulatory oversight from a disenchanted public sector.
Robinson's paper is accompanied by Perspectives by David Hyman and William Kovacic (representing the U.S. Federal Trade Commission); William Kopit (Ep-stein, Becker, and Green); and Arnold Milstein (Pacific Business Group on Health).
Health Affairs. 2004;23(6) © 2004 Project HOPE
Cite this: Consolidation and the Transformation of Competition in Health Insurance - Medscape - Nov 01, 2004.