NCPA Says Largest Insurers Dominate Health Insurance Market

AHPs Could Increase Competition

DALLAS (April 24, 2003) -- The five largest insurers control 75 percent or more of the health care market in 19 states and more than 90 percent of the market in seven states, according to a report released today by the National Center for Policy Analysis (NCPA).

"In many small cities there often is only one insurer," said the author of the study, Dr. Donald Westerfield, an NCPA Senior Fellow and Professor in the Graduate School at Webster University in St. Louis. "And that's bad for consumers."

The study ( found heavy concentration in the health insurance markets in all 34 states supplying information:

  • The largest insurer in the state controls 89 percent of the market in Alabama and North Dakota.
  • The five largest insurers control more than half the market in 31 states, and two-thirds or more of the market in 25 states.
  • Nationwide, the four largest insurers dominate 65 percent of the HMO small-group market.

"Small firms often must take whatever plan is offered them," Westerfield added. "Those plans most often have high premiums, high deductibles, and inflexible provisions."

In order to bring greater competition to health care markets, Westerfield advocates the expansion of Association Health Plans (AHPs). AHPs have been created for individuals and groups who belong to associations related to employment, hobbies or other interests.

There are about 15,000 associations in the U.S., such as The National Restaurant Association, the American Association of Retired Persons, the National Association of the Self-Employed, and many others. Potentially, these associations can bargain with insurers for all their members.

"AHPs can help make the market more competitive,' Westerfield said. "They can create insurance options for people who today have no alternatives."

By uniting workers into larger risk pools, AHPs can bargain with large insurers on the basis of more comparable strength, thereby lowering prices and increasing health care options, according to the report. Also legislation before Congress would allow some AHPs to bypass costly state regulations, like mandated benefits.

According to the report, insurers find that it often doesn't pay to move into small towns and compete for business. However, if small employers and self-employed workers, like barbers and restaurant owners, could purchase health care plans over the Internet through large professional groups or associations to which they belong, those associations could compete for bits and pieces of small local markets.

The study estimates that AHPs also have the potential to insure approximately 4.5 million workers and dependents who are currently uninsured.