For Many Consumers, Few Insurance Choices

The debate over whether the government should offer a public insurance plan is all about competition. How competitive is the private insurance market right now? It depends on where you live.

As a general rule, the larger, more densely populated states have the most choice — and even the biggest insurer controls only a minority share of the market. According to statistics from the American Medical Association, the leading insurance provider in California covers 24 percent of the population, while in New York the figure is 26 percent and in Florida, 30 percent.

But there are nine states where a single insurer covers 70 percent or more of the people. In Hawaii, one insurer covers 78 percent. In Alabama, it’s 83 percent. And in at least 17 other states one insurer covers at least half the population.

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Some members of the Senate Finance Committee, which is taking a lead on health care legislation, come from states where the insurance market is highly concentrated. The Democratic chairman, Senator Max Baucus, is from Montana, where 75 percent of people are covered by one major insurer, Blue Cross Blue Shield of Montana. For Senator Charles E. Grassley, Republican of Iowa, the figure is 71 percent, by Wellmark. For Senator Olympia Snowe, Republican of Maine, it’s 78 percent, by WellPoint.

“For many Americans, the idea that they have a choice of health plans is about as mythical as unicorns,” said Jacob Hacker, professor of political science at Yale University.

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But Robert Zirkelbach, a spokesman for the industry trade group, America’s Health Insurance Plans, argues that competition abounds. “In the top 40 metropolitan areas, there are eight or more health plans in every one of them,” he said.

“Both the Federal Trade Commission and the Department of Justice have reviewed this and found that health insurance plans operate in a highly competitive market,” Mr. Zirkelbach said. “Physicians’ offices contract on average with a dozen health plans.”

The choices may not appear quite so abundant to the average consumer.

If you receive coverage through your employer, you may have a selection of two or three plans offered by your company. If you work for a small employer, your choice is likely to be limited to a single plan, if that. And if you’re an individual with a pre-existing condition, the options may be closer to zero.

What’s less evident to most people is that employers, too — particularly smaller employers — face limitations in their choices. “A large employer can self-insure,” said Brad Herring, a health economist at Johns Hopkins Bloomberg School of Public Health. In other words, the employer collects the premiums and pays them out, when necessary, to cover medical claims — generally using a commercial insurer to administer the program and supply a network of doctors and hospitals, but not to financially underwrite the coverage.

“Roughly half of people with private insurance get it from a self-insured company,” Mr. Herring said.

But small businesses, which typically do not have the resources to self-insure, tend to purchase coverage through an insurer. And that often limits their options.

For one thing, insurers are regulated by states, which means only insurers that have been approved by the state’s insurance commission can sell there.

“You can’t shop across state lines,” said Jim Wordsworth, owner of a prime steakhouse, J.R’s Stockyards Inn in Tysons Corner, Va. “I can only buy insurance from companies that have the Virginia State Corporation Commission’s approval.” (Larger employers with staffers in multiple states can purchase coverage that’s exempt from state regulation.)

As chairman of the small business council of the U.S. Chamber of Commerce and a board member of the National Restaurant Association, Mr. Wordsworth has raised the issue on Capitol Hill, but has seen no move toward changing the law to open the insurance business to interstate operations.

Mr. Wordsworth is also limited in practice, if not in theory, by the expense of trying to buy a plan as a standalone business.

“A union can buy health insurance at a huge bulk discount,” he said. “A large corporation can buy at a discounted rate. A restaurant can’t. If the National Restaurant Association had access to [group rates], that would be different.”

America’s Health Insurance Plans, the industry group — which is generally known as AHIP — says on its Web site that there are nearly 1,300 insurance providers in the United States, covering more than 200 million Americans. But this number includes many plans with the same parent company, not to mention the parent companies themselves.

“When you get down to it, in many markets, it’s more like two,” said Wendell Potter, a longtime director of communications for the insurer CIGNA, who now serves as a senior fellow in health care at the Center for Media and Democracy and has become an outspoken critic of the industry.

As critics see it, part of the problem is consolidation in the insurance industry. According to the American Medical Association, there have been 400 corporate mergers among insurance providers in the last dozen years. WellPoint alone covers 34.2 million people, according to the company’s second-quarter earnings report. UnitedHealth Group covers 29.5 million, according to its second-quarter statement.

“The largest seven insurers cover more than 100 million people, a third of the market,” said Mr. Potter, who bases his figures on federal securities filings.

In a capitalist economy, the drive to consolidate should come as no surprise. “Insurance companies need to grow their earnings per share to satisfy Wall Street investors,” said Avram Goldstein, research director for Health Care for America Now, a coalition of groups favoring a health care overhaul that includes a government-run public insurance plan to compete with private insurers

The practical question is whether this consolidation is driving up the price of premiums. In a report issued at the end of May, Mr. Goldstein’s group concluded that it is.

“Premiums have risen four times faster than wages in the last nine years,” said Mr. Goldstein. “We feel that shrinking competition among insurers is a major cause of this kind of dramatic increase.”

But Mr. Zirkelbach of AHIP emphatically disagrees.

“Hospital consolidation has driven up prices,” he said. “Price Waterhouse Coopers studied this and found that in the last 20 years, benefit costs have risen 8.7 percent every year. During the same period, premiums have gone up the same amount, so there’s a correlation in the increase of premiums and the cost of the services that are provided.”

Would non-profit coops provide meaningful competition?

Mr. Potter, the former CIGNA officer, is skeptical.

“Philadelphia, my hometown, is dominated by Independence Blue Cross and Aetna,” he said. As it happens, that’s where CIGNA has its headquarters. “But CIGNA has a small presence there,” he said. “The market is largely locked up by the dominant companies.”

And if CIGNA can’t gain a more meaningful base in its own hometown, “a small, non-profit co-op doesn’t stand a chance,” Mr. Potter said. “It’s like a grocery store competing against Wal-Mart.”

Would a government-run public insurance plan help? Proponents say it would, by providing the competition to contain costs.

But Mr. Zirkelbach of AHIP said, “A new government-run plan would significantly disrupt the coverage that people currently rely on.”

“The important question to ask is, do individuals, families and small business have access to a variety of plans to choose from?”

At the moment, there is little consensus on the answer.

Comments are no longer being accepted.

I recently received notification that United Health Care has bought out Healthnet (formerly PHS), my insurance provider. This perpetual hunger for scale may be good for corporate profits – but it does little for the cause of consumers choice.

To address another point, I find it especially hypocritical when ‘State’s Rights’ advocates choose to argue that New York or New Jersey are in the wrong by requiring insurers to pass muster on a state-by-state basis.

You’re exactly right! Health care violates the assumptions of competitive markets. There are other market failures to consider too, such as externalities (emergency room crowding) and one could reasonably argue it is a public good.

The key point here is: government intervention is not always opposed to markets. Sometimes, as in health care, government intervention is needed to make sure markets are competitive, and if that doesn’t work, then government intervention should take health care off the market and provide it publicly (this is the argument of economist Paul Krugman).

Regarding health care, government intervention so far in this country has created markets but has not done much to make sure they are competitive. What I mean is that medicare takes the most costly people off the market, clearing the way for insurance providers and others to make excessive profits. We need govt intervention to make sure it is more competitive, and if that still doesn’t work, we need the govt to take more ownership over health care and/or insurance. It makes complete economic sense, in that it maximizes public well being and combats (private) inefficiency.

Americans are deluding themselves by continuing to believe we are still a wealthy enough country to continue to afford our haphazard very expensive decentralized health insurance system. Unless the insurers compete with public plan akin to standard Medicare for all, things will just get worse.

Time for Obama to show us that change we can believe in.

Dr Aubrey W Bonnett August 19, 2009 · 10:55 am

this is a very good analysis

This is actually one of the more informative articles I have read on the practical aspects of the health insurance situation.
What I am left wondering is what are the pros and cons of allowing companies to write policies across state lines? I have a feeling that the insurance commissions in some states are virtually non-existent and that is an issue. I also wonder if there is qualitative differences in health insurance between states. A lot of businesses incorporate in Delaware because the laws in that state favor them; would be asking for the same thing if we allowed health insurance to work the same way? What do the states rights people think of this?

The myth o that private insurance is doing a fine job of covering Americans is alive and well. If you’re rich and healthy, it’s fine. If not, you’re in big trouble.

//www.political-buzz.com/

Could you maybe use colors with a little more contrast?

Good post. Touches upon issues our whole populace needs to know about, but doesn’t, as we face the challenges of health insurance reform.

The piece acknowledges aspects of all the major options, including open-market ideas, but without outright support for one system over the other.

I look forward to more conversation and explanations like this. But, alas, I fear the screamers are distracting too many people from a fruitful discussion.

I for one plan to pass this along so others can consider it. One person, a physician, trying to help the discussion and beating back the screamers. It’s the least I can do, beyond encouraging other readers to do the same.

//drmaliareckons.posterous.com/

I live in Colorado. I am almost 65 years old, retired physician. I hike Pikes Peak every year, ski, run, bike. I’m in great shape. I have asthma and high cholesterol. Until BC/BS in Colorado changed its policy, I could not sign up with them. When they finally took me, it was only with exclusion of my “preexisting conditions”. Their rates have doubled over the past several years.

In several months I will be 65. I have already signed up for that “government option” “socialistic takeover” monstrosty called medicare. I cannot wait to be on it and tell BC/BS where to go.

As a consumer, I would like to see single payer or government option.

I can tell you that as a provider, medicare didn’t pay well, but it payed and didn’t play games with you. I made a living in Florida with a 90% medicare practice.

So how much are the Blue Dogs getting from their local monopolistic insurance companies?

Kaiser Permanente is a non-profit HMO. I know that the CEO is not on the way to becoming a billionaire, like the CEO of United HealthCare (he of the $774,000,000 in unexercised stock options and the $6.5 million home in Wayzata, Minnesota–what must a $6.5 million home in MINNESOTA look like?).

And Kaiser’s health-care research subsidiary, the Kaiser Family Foundation, is quoted in half the news articles ever written, it seems, with information about the cost and extent of health coverage in the USA.

But Kaiser Permanente, saintly non-profit HMO, has raised our small family’s premium from $1000 to $2000 per month during the last five years. This isn’t based on any experience-rating for our family; Kaiser has collected far more money from us than it has ever paid for in claims and services for us, I am certain: it is the exact same premium charged to every mom-dad-kids family in our geographic area: WHO HAVE THE MISFORTUNE TO BE INDIVIDUAL CUSTOMERS AND NOT IN A GROUP PLAN.

As Ernest Hemingway wrote long ago in “To Have and Have Not”: “Man alone ain’t got no bloody f—king chance.”
It’s as true now as it ever was.

At this point I am only praying that next January’s certain increase from KP will just be the “normal” 20 percent, taking us up to $2400 per month. That will be another $4800 a year no longer available to us for retirement savings, college funds, spending on local businesses, or just keeping in the bank for others to borrow and grow the economy with.

The other insurers in our landscape–BC/BS, Aetna, whomever–they won’t touch me at all. I’m 50 with high blood pressure, and since I don’t have access to any group plan, they can all tell me to get lost and have done so.

When Barack Obama won in a landslide last November and the Democratic Party achieved huge majorities in Congress, I reasonably expected, and had hope for, some major, major reforms that would remove the stranglehold of the private insurance market from around our family’s collective neck and the necks of the millions of others in our position

Instead I have received an incessantly watered-down set of proposals, key element after key element seeming to become “negotiable”, bizarre protests from middle-class Republican dead-enders who seem bizarrely to believe that Big Health and Big Pharma are their friends; and the sense that the entire process has been handed over to a born-rich clown from Montana–the amazing Max Baucus, a little-known, cow-state, Senate mediocrity of 31 years’ standing–some kind of Democratic version of George W. Bush–who is so eager to please his true Republican buddies in the Senate and the health-care lobbyists who had him bought and paid for long ago, that he might as well be on the other side. To say I’m disappointed and truly surprised would be one hell of an understatement. I stand all amazed, really.

Why doesn’t the Democratic majority and administration act with courage?

Thank you for this excellent piece. It is very informative.

In order to win the argument in favor of healthcare reform, President Obama and his allies on this issue need to change the terms of the debate. As long as we’re talking about healthcare as a commodity, those who favor a privatized system are going to prevail – because a dynamic free market is certainly far better than the federal government at accurately setting (and adjusting) prices for commodities.

What we should be doing is talking about healthcare as a public good. Just like military defense, interstate highways, lighthouses and education, it’s something fundamentally necessary for the functioning of a society; we’re all better off if everyone has access to it; and at the scale required to provide it for 300MM+ people, we need to be leveraging the resources (and yes, buying power) of the national government.

Does this mean that doctors, nurses and hospital administrators should be government employees? Certainly not. Just like education, individuals should have the ability to opt-out of the public system if they find a better opportunity elsewhere – but there should be a public option to enforce broad standards of quality and to ensure that everyone has access to a good that is simply required for a productive, prosperous country.

I work for the State of BCBS. You see, I’m a state employee of NC and the health plan with it’s constant rate increases and co pay increases is not even put out for bid to other companies.

They are a “not for profit: company so the money goes to the upper level managements that is running it into the ground. Finally beginning in July 2010 they will determine the level of care and your payments based on personal habits including your BMI.

We desperately need a public option, in my humble opinion Medicare for all! Kate @ //www.aftercancernowwhat.com

The analysis is correct. The lack of competition is what makes our health insurance market so stagnant and serve consumers so poorly.

//bit.ly/IHMn0

I believe that the health insurance market is an oligopoly. The number of states where one insurance provider dominates 50% or more of the market is one indicator. The number of states where two or three insurance providers together dominate 50% or more of the market is another market indicator.

If the health insurance market were truly competitive, those health insurance premiums wouldn’t be skyrocketing, wouldn’t they?

Here’s a great article about the American health care system. It identifies the root problems that exist in our current system and why the proposed “reform” isn’t really addressing any of them. Personally, I’m for true health care reform. It’s obvious that the current system is broken and unsustainable, but if we don’t address the fundamental problems in the system, we’re just wasting our time…

//www.theatlantic.com/doc/200909/health-care

One of the biggest scams since Bernie Madoff has been the effort of the medical-industrial complex to convence the American people that a public insurance option is bad for them. The latest twist in this effort is the idea of health care co-ops. A reading of American history shows that cooperatives have a poor record of success. Issues as complex as healthcare affordibility and accessibility requires a national solution. Local or even regional cooperatives will never be able to contain costs and cover the forty eight million citizens who have no coverage.
If a public health program is so bad perhaps we should dismantle the Veteran Administration health care system and tell our veterans to form a health care cooperative. Or we could abolish the medicare system and let the old folks form health care cooperatives. And best of all ,Congress could show leadership by voting to abolish the “cadillac” health insurance plan that they and the executive branch enjoy and form a health cooperative with the White House. If any one of those three things happon I will take another look at health care cooperatives.

I don’t understand what passes for journalism today. The article paints a grim picture of reality, then balances it with empty happy-talk from an acknowledged industry stooge. Why even print what this Zirkelbach fellow has to say? You know he isn’t going to be in any way forthright; he’s simply there to regurgitate carefully crafted talking points, which have little, if any, relationship to reality. Actual journalism would have involved insightful deconstruction of the lines Zirkelbach presented, instead of simply “giving both sides”.

Reality isn’t a chess match. There are facts and there is PR spin. Presenting them side-by-side doesn’t qualify as journalism.

I propose that we ask every elected member of Congress the following two questions:

1. Will you vote for a public option that enables U.S. taxpayers to purchase the same health insurance that is available to you, your family, and all Federal employees? We are not asking for a handout or subsidy or a discount. We are willing to pay our way for exactly the same health insurance that is available to you. How do you respond: yes or no?

2. Every member of Congress unwilling to allow us to purchase the same insurance available to them should explain why they are willing to protect private health insurance company profits at the expense of the health of U.S. taxpayers?

But this has nothing to do with health care reform.

This has to do with regulating prices. Changing laws on suits aimed at Dr’s and Insurance companies. If anything Government can regulate them.. but we see that government regulation failed during this economic recession. So what will we do. We are paying to much for insurance… these are the ones insured. that is not what health care reform is focussed on. Its main drive has been thsoe without insurance and those self-insured. What about the costs to tax payers when we have to pay for a national system.

Medicare is a debt laden mess. How am I supposed to believe that a national system will be better.

Interesting article, but the premise is a red herring. Increasing competition is not the answer here. Even with thousands of insurers in the market, none will be fighting to serve the 80 year old cancer patient. In fact they will be fighting to get rid of her. Nobody competes for inherently unprofitable customers no matter how many players are in the market.

Most of the rural remote towns in America would be without electricity if utilities weren’t regulated such that they must provide service to these areas. In a purely competitive market, nobody would build out service to these areas. What would be the point? To lose money?

As a physician, I find all this talk about competition to be nonsense. All I know is, you could be my patient one day, then switch jobs (or your partner or parent or whoever switches) and then begone.
There is no continuity of care, for the purpose of “competition.” I have to hire more staff in my office (out of my already low fees paid by insurance) to keep track of each plan, where to send bills, what are copays, maximums, etc. Then, since I practice in the behavioral health field, each patient gets a different plans, based on what their job selected – like some patients are allowed 10 visits/year, some 20, some 50. Some have a large deductible and copay, others are low. So actually I have to design different therapies for each patient based on their “competitive” plan, and some of these therapies are substandard. Or I can “fight” with the insurance company which takes enormous time which is not paid for.

Do you know most physicians hate this, NOT because we don’t make $ (although we don’t) but because, believe it or not, we entered this profession because we actually wanted to help patients and provide the highest level of care.

I ask you, how does all this “competition” this benefit my patients?

Not al all.

Ironically, it is government intervention that is causing the reduction in competition. Take Florida for example. I founded the only new statewide health plan in the past 14 years here called Avalon Healthcare. Why? Because of daunting state requirements to fund and manage a health plan. Trust me to say that we may be the only new health plan started in Florida for a very long time.

In addition, we believe we are the only new health plan started in America in the past four years. Regulation and mandates have already strangled the industry. Compounded by consolidation and what we have is not enough competition, in many ways, although a government program would be even more stifling not unencumbering like some wish to believe.

Like poster number 1 I just received the same notification about Healthnet, formerly PHS, being bought out. I can’t wait (sarcasm) to find out who else among my providers will not be covered.

I really have very few choices in my options for health insurance. And the new insurer is not rated as highly as my current insurer (who is also not rated too well.) We might as well have a single payer system for all the choice that we have.

We are all a pay check away from no coverage. That means that many of us can count on going bankrupt if we become seriously ill. Why? Because if we can’t work we lose our jobs and lose our insurance. If we lose our insurance we can’t afford to pay for care. No money, no care. It’s time to change that equation.