Is Health Insurance Moving Toward Oligopoly?

Elyas Bakhtiari, for HealthLeaders Media , June 30, 2010

Theoretically, an influx of 30 million new customers in any industry has the potential to spark innovation and open up new opportunities for smaller players. What better time for a smaller insurer to grow business than when millions of Americans will soon be shopping for insurance for the first time? Large insurance companies aren't as nimble, and the leaner organizations may be better able to respond to changes in the market.

More aggressive antitrust enforcement may also curb the rate of consolidation. In that period between 1998 and 2008, the feds challenged only three mergers on antitrust grounds. But the U.S. Justice Department said in March that it will be more aggressive in blocking mergers "that appear to present a competitive concern." It already denied the merger of two Michigan insurers this year.

In reality, it may not be that easy to relieve the pressures that come from combination of state and federal regulations and growing need for cost effectiveness. It's tough for any insurer to make it without the infrastructure and technology to manage the wellness, data-tracking, quality-incentive, and cost-control programs necessary in today's market.

There's one group to watch, though: Health plans in integrated systems. Although provider-owned health plans have been disappearing in recent years, in part because they are prime targets for acquisition by larger insurers, they are primed for a resurgence.

Physicians and hospitals are facing consolidation pressures just like insurers, and the intense focus on seamless and integrated care has raised interest in building health systems. Adding a health plan to that strengthens the overall alignment and cost-control potential.

Whether that will happen, and how quickly, remains to be seen. There's a lot of uncertainty about the future these days, but the trend line of the last decade, and the direction it is headed, is pretty clear.

Elyas Bakhtiari is a freelance editor for HealthLeaders Media.

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