Competition in health care research

The Division of Economic and Health Policy Research conducts independent research on competition in health insurance markets. He also began conducting research on pharmacy benefit management (PBM) markets.

A key public policy question is whether health insurance markets are competitive or whether insurers have market power that can harm consumers and providers of health care. A useful indicator of competition and market power is market concentration. The US Department of Justice and the Federal Trade Commission consider concentration in their evaluation of proposed mergers between firms.

One of the division’s most significant efforts is the annual Health insurance competition (CHI) study. This annually updated survey is the only publication of its kind. It is based on an analysis of unique enrollment data from a single data source for health insurers in all US states and metropolitan statistical areas (MSAs). The department has also conducted analyzes of past and proposed mergers between health insurers.

This year, the department began conducting surveys of PBM markets. Using unique life recording data with commercial drug coverage from the same data source used for its CHI study, the department published a paper as part of Perspectives on Policy Research (PRP), which aims to shine a light on this understudied market.

The 2021 Update Competition in Health Insurance: A Comprehensive Study of US Markets (PDF) presents 2020 data on the degree of competition in commercial health insurance markets. It aims to help identify areas where consolidation involving health insurers could cause anticompetitive harm to consumers and care providers.

The study reports the two largest insurers’ market shares and levels of concentration (HHI) for all markets at the state and MSA levels in the US

Key findings from the 2021 update include:

  • Seventy-three percent (280) of MSA-level markets were highly concentrated (HHI>2,500) in 2020, up from 71% in 2014.
  • The average HHI of MSA-level markets was 3,494 in 2020.
  • Fifty-seven percent of markets experienced an increase in the HHI between 2014 and 2020. Among these markets, the average increase was 531 points.
  • Of the markets that were not highly concentrated in 2014, 26% had an increase in HHI large enough to put them in the highly concentrated category by 2020. Another 39% also had an increase, though not enough large to make them highly concentrated.
  • In 91% (348) of MSAs, at least one insurer had a commercial market share of 30% or more, and in 46% (178) of MSAs, a single insurer’s share was at least 50%.
  • The Blue Cross Blue Shield (BCBS) affiliate had the largest state-level market share in 40 states.
  • The BCBS affiliate had the largest market share at the MSA level at 81% (311) of MSAs.
  • Anthem had the largest market share at the MSA level at 21% (80) of MSAs.
  • Nationally, UnitedHealth Group was the largest commercial health insurer in the US, and Centene was the largest insurer on the exchanges.


Maps of the survey

Using new 2020 data on the lifetime of commercial drug coverage based on five PBM features, this PRP titled Competition in Commercial PBM Markets and Health Insurer Vertical Integration with PBMs (PDF) presents a descriptive analysis of PBM markets and the provision of PBM services to health insurers. It reports the ten largest commercial PBMs and drug insurers in the US nationally. The paper also presents the two largest PBM market shares and levels of concentration (HHI) for all markets at the state and MSA levels. Finally, it quantifies the degree of vertical integration of health insurance companies with PBMs.

Key findings from the paper include:

  • Nationally, the top four PBMs provide negotiated rebates for a combined 66% of commercial drugs. The results are similar for retail network management and claims resolution.
  • Of the top 10 PBMs that provide rebate negotiation, six are used exclusively by a single insurer or set (Blues) of insurers.
  • For the other two PBM functions—formulary management and benefit design—about 37% of drug life is managed by insurers “in-house.”
  • The average HHIs in the state-level and MSA-level rebate negotiation markets were 3746 and 4103, respectively. The numbers were similar for the retail network management and claims processing markets.
  • Nationally, 69% of commercial drug lives are with a vertically integrated insurer. Although the averages across states and MSAs are somewhat lower (63% and 65%), there is wide variation across states and MSAs.

The AMA conducted analyzes (see below) of the likely impact that the blocked Anthem-Cigna and Aetna-Humana mergers would have on the commercial markets and of the Aetna-Humana merger on the Medicare Advantage markets. The analyzes found that any of the mergers would likely be anticompetitive in many U.S. markets

Read more about the AMA’s successful effort to block the Anthem-Cigna and Aetna-Humana merger.

This paper (PDF) examines the relationship between health insurance market concentration and prices. This is a case study from the 2008 merger between UnitedHealth Group and Sierra Health Services.

It found that premiums for health plans in the Nevada marketplaces increased 13.7 percent after the merger. The findings show that the merging parties used the market power gained by the merger.

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