IS HEALTH INSURANCE MOVING TOWARD OLIGOPOLY?
July 9, 2010
Consolidation in the health insurance industry has been underway for years. The market is becoming an "oligopoly," dominated by just a few companies, and President Obama's health care reform may accelerate the process, Michael Kleinman, vice president for investor relations at WellPoint, Inc.
"There are going to be smaller insurers that are not going to be able to survive in this marketplace," Kleinman said of the post-reform era.
According to Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York:
- WellPoint and 11 other health plans already cover two-thirds of the enrollment in the U.S. commercial-insurance market.
- The health care overhaul is likely to push at least 100 insurers with 200,000 members or less out of the business as the plans are increasingly unable to invest in the infrastructure and technology to effectively manage care.
While it's easy to point the finger at new federal regulations and price controls, the industry has been consolidating for years, says HealthLeaders Media:
- Mergers, rather than small insurers going out of business, have been the main driver; between 1998 and 2008, there were more than 500 mergers involving health insurers.
- Now, in nearly half of states the two largest insurers have a combined market share of 70 percent or more.
- And 99 percent of metropolitan markets are considered highly concentrated according to federal merger guidelines.
The question now is: What effect will the new reform law have on this long term trend? The answer may not be as clear cut as it seems. Theoretically, an influx of 30 million new customers in any industry has the potential to spark innovation and open up new opportunities for smaller players, says HealthLeaders Media.
Whether that will happen, and how quickly, remains to be seen. There's a lot of uncertainty about the future these days, but the trend of the last decade, and the direction it is headed, is pretty clear, says HealthLeaders Media.
Source: Elyas Bakhtiari, "Is Health Insurance Moving Toward Oligopoly?" HealthLeaders Media, June 30, 2010; and Alex Nussbaum, "WellPoint's Kleinman Sees Health Insurer 'Oligopoly,'" Bloomberg Businessweek, June 24, 2010.
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