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Health Insurance Profits Soar as Industry Mergers Create Near-Monopoly

Posted on May 27, 2009 | in Labor News | by

Profits at 10 of the country’s largest publicly traded health insurance companies rose 428 percent from 2000 to 2007, while consumers paid more for less coverage. One of the major reasons, according to a new study, is the growing lack of competition in the private health insurance industry that has led to near monopoly conditions in many markets.

The report says such conditions warrant a Justice Department investigation and, says Sen. Charles Schumer (D-N.Y.), provide compelling evidence of the need for a public health insurance plan option as part of the health care reform initiative President Obama and Congress are developing.

Schumer says the report from Health Care for America Now! (HCAN)

is the starkest evidence yet that the private health care insurance market is in bad need of some healthy competition. A public health insurance option is critical to ensure the greatest amount of choice possible for consumers.

According to the recently released HCAN report, “Premiums Soaring in Consolidated Health Insurance Market“:

In the past 13 years, more than 400 corporate mergers have involved health insurers, and a small number of companies now dominate local markets but haven’t delivered on promises of increased efficiency. According to the American Medical Association, 94 percent of insurance markets in the United States are now highly concentrated, and insurers are thriving in the anti-competitive marketplace, raking in enormous profits and paying out huge CEO salaries.

These mergers and consolidations have created a marketplace where a small number of larger companies use their power to raise premiums—an average of 87 percent over the past six years—restrict and reduce benefit packages and control and cut provider payments.

In a letter to the Department of Justice’s Anti-Trust Division, Richard Kirsch, HCAN national campaign manager, and David Balto, former policy director of the Federal Trade Commission and now senior fellow at the Center for American Progress, write:

Simply put, the private insurance companies have secured monopolies or tight oligopolies and exercised that power to put profits ahead of patients….There were no actions taken against anticompetitive conduct by health insurers in the last administration, in spite of the fact that cases by state attorneys general have secured massive fines against these insurers. A lack of antitrust enforcement has enabled insurers to acquire dominant positions in almost every metropolitan market.

They ask for an investigation of the already consummated mergers that “harm competition or create an anticompetitive market structure.” They also urge the Justice Department to conduct investigations of “anticompetitive conduct by dominant insurance companies and challenge that conduct where appropriate.”

Many dominant insurers limit the ability of providers to choose rival insurers or inform patients about more efficient and comprehensive coverage. The DOJ should investigate tools used to stifle competition such as physician gag clauses, most favored nations provisions, all-products clauses, and silent networks, which prevent providers and consumers from having the full range of competitive alternatives.

Schumer last week co-sponsored a Senate resolution urging the creation of a public health plan option and says a public health plan “is critical to ensure the greatest amount of choice possible for consumers.”

We believe that it is fully possible to create a public health insurance plan that delivers all the benefits of increased competition without relying on unfair, built-in advantages. If a level playing field exists, then private insurers will have to compete based on quality of care and pricing, instead of just competing for the healthiest consumers.

Click here for a copy of the full report.

Tell us what you think should be included in comprehensive health care reform. Take the 2009 Health Care for America Survey. The survey gives you the opportunity to make your voice heard and helps shape health care reform to meet the needs of working families.

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