Competition and Health Plan Quality in the Medicare Advantage Market
Discussant: Daria M. Pelech
Paper title: Competition and Health Plan Quality in the Medicare Advantage Market
Author: Emily Adrion, PhD, MSc
Theme: Competition in medical and health insurance markets
In recent years, proposed mergers and acquisitions among some of the largest health insurers in the United States – including Anthem and Cigna, and Aetna and Humana – have attracted widespread media attention. Insurers argue that consolidation can lead to lower prices through increased bargaining power in negotiations with providers. However, consumer advocates, politicians and policy experts alike have raised concerns that such mergers would adversely impact patients via higher cost sharing for care and a reduced focus on quality and innovation.
Despite the ubiquity of arguments about competition and quality, few studies have assessed the impact of insurer market concentration on health plan quality. The purpose of this study is to examine the intersection between insurer market structure, health plan quality and health insurance premiums in the Medicare Advantage (MA) program, in order to begin to better understand the direct and indirect effects of health insurance company mergers and acquisitions, as well as policies aimed at increasing competition. Data for this study were drawn from a number of publicly-available administrative datafiles from the Centers for Medicare and Medicaid Services, as well as data from the AHA Annual Survey, the Current Population Survey, and the Area Health Resources File. Descriptive analyses examine trends in county-level MA market concentration from 2008-2017. Generalized linear regression models examine MA plan quality and MA plan premiums as a function of market structure for 2011.
Over the last decade, the MA market has remained highly concentrated. Since 2011, over 90% of all county-level MA markets were found to have Herfindahl-Hirschman Indices (HHI) of 2,500 or greater. While the Medicare Payment Advisory Commission reports that the average Medicare beneficiary has 18 MA plans to choose from in 2017, this analysis suggests that the vast majority of beneficiaries live in counties dominated by a small number of insurers. Findings from the analytical models indicate that plans operating predominantly in highly concentrated MA markets (HHI=7,500), had a much higher predicted probability of receiving a high-quality summary rating (predicted probability [PP] 59.96, 95% CI 46.68-71.92) as compared to MA plans operating predominantly in very competitive (HHI=100) MA markets (PP 23.92, 95% CI 16.98-32.59). In line with other literature in this area, operating in more concentrated MA markets was found to be associated with higher premiums. However, findings further suggest that this relationship between market concentration and premiums may be modified by health plan quality: among plans operating in very concentrated MA markets, high quality MA plans were associated with premiums as much as two times higher than those associated with lower quality plans.
Results suggest that any policies directed at enhancing insurer competition in MA should consider implications for health plan quality, which may be very different than the implications for enrollee premiums.