Over the past several months consumer advocates, legislators, health care providers, and antitrust regulators have been increasingly asking tough questions about health insurance mergers. Proponents of the acquisitions frequently claim that the mergers will lead to increased innovation and benefit consumers. However, Professor Leemore Dafny recently conducted a study on the subject, and concluded there is no evidence of greater product innovation in more concentrated insurance markets.
There has been little research done on the impact of consolidation on insurance innovation, partly because the insurance plans of today are similar to the insurance plans that existed thirty-five years ago. The 2010 FTC/DOJ Merger Guidelines note that “competition often spurs firms to innovate” and that agencies should consider whether a merger is likely to diminish innovation, either by encouraging the merged company to reduce its innovative efforts or by encouraging the company to stop offering certain products.
When companies talk about innovation, they are frequently referring to a type of selective contracting, where companies identify the most effective and efficient providers, negotiate favorable terms with them, and provide financial incentives to patients to use these providers. Most individuals now have access to narrow network products in the public health marketplaces, and narrow means a product with less than 70% of local hospitals in-network. While this development isn’t inherently bad, Professor Dafny concluded that “at a minimum, a greater variety in networks—holding all else constant—expands the set of options available to consumers and can be construed as a market of greater innovation in the insurance marketplace.”
The study used the state-level private health insurance Herfindahl-Hirschman Index (HHI) to examine the link between health insurance market concentration and the variety of available provider networks. Her study examined physician networks, and found that there is no evidence that larger health insurance companies produce more innovation. In fact, innovation tended to be lower in states with more consolidated insurance markets. Since health insurance innovation has historically been slow, she concluded that changes in insurance markets might be necessary to spur additional innovation, and that further consolidation would not help.
The evidence is increasing that these health insurance mergers will not help consumers. Given this latest study and earlier studies examining insurance premiums and divestitures, additional skepticism about merger benefits is justified.