Anthem and Optima are Virginia's biggest health insurance providers.
According to a recent report from the American Medical Association, the Hampton Roads health insurance market is dominated by only two providers:
1) Anthem Blue Cross and Blue Shield of Virginia, with 70% of the PPO (Preferred Provider Organization) market share, and
2) Optima Health, part of Sentara Healthcare, with 58% of the HMO (Health Maintenance Organization) market .
Dr. James Rohack, former president of the American Medical Association, took the opportunity to blame large corporations like Anthem for consumers’ higher premiums.
“You’ve taken away one of the American principles – that is, when you have competition, quality goes up and price goes down,” said Rohack.
However, many insurers and economists beg to differ with Rohack’s comments, and instead state that medical costs are what truly drive premium costs up, and that large insurance companies compete fiercely for business. Some are claiming that the analysis is biased and self-serving.
Scott Golden, an Anthem spokesman, said: “Competition in Virginia is well when it comes to health insurance. We don’t really give credence to self-serving studies like this.”
The report took 2008 data about two kinds of health plans and showed that WellPoint (owner of Anthem) held 61% of the market share for HMOs and PPOs in the Hampton Roads area. Optima ran second with only 15% of the market share.
HMOs usually require patients to designate an in-network primary-care physician and are restrictive about paying costs for physicians out of the network. A PPO plan is different in that it permits patients to receive coverage when they receive services from providers that are out of the network.
The vast majority of economists agree that health insurance markets have shrunk in recent years. HMO companies melded into other companies, and the industry changed from being locally-based to nationally-based, says Mark Pauly, professor of health care management at the University of Pennsylvania’s Wharton School.
WellPoint, created from a 2004 merger of WellPoint Health Networks and Anthem, is the single largest insurer within the Blue Cross and Blue Shield Association. The American Medical Association’s report shows that WellPoint had 57% of Virginia’s combined HMO and PPO market in 2008, with Aetna second with only 12 percent.
Doug Gray, executive director of the Virginia Association of Health Plans, along Anthem’s spokesman Scott Golden, said that they don’t feel the study accurately represents the market. They point out that the study didn’t include self-funded HMO plans, in which business owners assume the financial risk for providing health care plans to their employees.
Optima’s senior vice president of sales and marketing, John DeGruttola, said his company does submit numbers to the research company that was the source of the report, but that certain percentages did not seem to be correct. Anthem’s Golden agrees that Anthem is the local leader, but claims that the company’s share is only about 35% of Virginia’s insured population when including HMOs, PPOs and other policies.
“Right now, you have one, two or three players that may cover a geographic area or the entire state, but then you have a lot of niche competitors that sell specific products in specific areas,” Golden said.
What Does this Mean?
This study underscores what brokers and health insurance experts have known all along: that Anthem Blue Cross Blue Shield dominates the Virginia health insurance market, Optima Health is a major player, and that Aetna is also a competitive player. Drawing conclusions from such a study is not so obvious.
Large corporations such as Anthem Blue Cross and Blue Shield are popular for a reason: they offer tremendous negotiating power with doctors and hospitals. Virginia Health care providers can miss out on customers if they don’t join the networks of large insurers. Also, because large insurers are so big, that can offer lower prices on health care coverage.
Paula Wade, principal analyst with HealthLeaders-InterStudy, the research firm behind the report, says:
“The force that makes the big get bigger in this business is that ability to negotiate a lower rate. Because if you’re negotiating lower rates, the likelihood is you can probably sell your product for a little cheaper.”
Paula Wade and Mark Pauly, professor of health care management at the University of Pennsylvania’s Wharton School, both threw out the idea that insurance market monopolies lead to higher consumer premiums.
According to Professor Pauly, cost increases are largely driven by new medical technologies, the rising usage of health care, and even higher wages in health care related jobs.
The study also ignores another area that can cause price increases: hospital mergers. If a hospital dominates a local market, health insurers have no choice but to meet the demands of the company.
Yes, Anthem and Optima are big, but that doesn’t mean that they are driving up medical insurance costs. In fact, Anthem recently refused to increase wages for its members after The Children’s Hospital of the King’s Daughters (CHKD), the Children’s Medical Group (CMG), and the Children’s Surgical Specialty Group (CSSG) threatened to leave if Anthem didn’t increase its payments.
The Future
The national Health Care Reform Law is expected to change prices in the future; in which direction is unknown.
Health insurance exchanges scheduled to begin in 2014 could bring increased competition for businesses from individuals and small companies. Also, this year the law requires health providers to pay consumers if premiums are spending less than 85% on medical services for large-group plans and 80% for individual and small-group plans. This could reduce the possibility of price gouging, but it also significantly reduces the flexibility that health insurers depend on.
Source:
Jeter, Amy. The Virginian-Pilot. Report: 2 firms dominate Hampton Roads’ insurance market.
April 12, 2011
http://hamptonroads.com/2011/03/report-2-firms-dominate-hampton-roads-insurance-market
