Home Health Health Care New Health Care Symposium: No Evidence That Insurance Market Consolidation Leads To Greater Innovation

New Health Care Symposium: No Evidence That Insurance Market Consolidation Leads To Greater Innovation

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Editor’s notice: This publish is a part of a Health Affairs Blog symposium stemming from “The New Health Care Industry: Integration, Consolidation, Competition within the Wake of the Affordable Care Act,” a convention held just lately at Yale Law School’s Solomon Center for Health Law and Policy. Links to all posts within the symposium can be added to Abbe Gluck’s introductory publish as they seem, and you may entry a full listing of symposium items right here or by clicking on the “Yale Health Care Industry Symposium” tag on the backside of any symposium submit.

As insurers embark on a brand new wave of mergers and acquisitions, lawmakers within the House and Senate, regulators, shopper advocates, and health care suppliers are asking robust questions concerning the doubtless influence of those mixtures. Much has been written about how health insurance coverage mergers increase premiums whilst they scale back costs paid to suppliers. But little or no has been stated concerning the influence of consolidation on insurance coverage innovation.

In half this oversight is the results of many years of inattention to insurance coverage innovation. After all, insurance policy at this time may be described utilizing nearly the identical phrases as 35 years in the past: deductibles, coinsurance charges, and limitations on sure providers. Interest in a barely totally different mannequin—the classical, tightly-managed health upkeep group (HMO)—has waxed and waned, and even these fashions have adopted the usual monetary traits of different health insurance coverage preparations.

Variation In Network Breadth Is A Measure Of Product Innovation In Health Insurance Markets

The “innovation” of at this time—“restricted,” “slender,” or “high-performance” networks—is definitely a variant on the well-worn technique of “selective contracting.” Identifying the simplest and environment friendly suppliers, negotiating favorable phrases with these suppliers, and offering monetary incentives to sufferers to make the most of these suppliers (e.g., by together with solely chosen suppliers in-network), are tried and examined techniques in insurers’ toolkits. However, insurers pursued selective contracting with gusto for merchandise provided on health insurance coverage marketplaces in 2014 and 2015. (There are indicators that these merchandise are now displacing plans with broader networks on the off-exchange market as properly, at the very least for people and small teams.)

McKinsey stories that 92 % of the inhabitants had entry to a “slender network” product in 2014 by way of the general public health insurance coverage marketplaces (HIMs), the place “narrow” is outlined as a product with underneath 70 % of native hospitals in-network. Roughly half of the networks provided on the HIMs have been slender by this definition, and subsequent analyses present the prevalence of slender networks has solely elevated over time.

Reducing community measurement is neither inherently good nor inherently dangerous. A restricted community is just not strictly worse for all shoppers, each as a result of suppliers might be chosen for his or her high quality and effectivity and since restricted networks could also be collectively provided with different providers that enhance high quality and/or effectivity of care whereas facilitating in-network utilization. At a minimal, a higher selection in networks—holding all else fixed—expands the set of choices obtainable to shoppers and could be construed as a marker of larger innovation within the insurance coverage market (Note 1).

We assembled a dataset to discover the hyperlink between insurance coverage market focus and the number of supplier networks obtainable. We use the state-level personal health insurance coverage Herfindahl–Hirschman Index (HHI) reported within the 2014 version of the “Competition in Health Insurance” collection issued by the American Medical Association. We research doctor quite than hospital networks, because the hospital sector is extra consolidated and insurers might subsequently have much less flexibility in selecting what number of and which hospitals to incorporate in a given space. (For instance, if there is just one hospital in a state that gives cardiac surgical procedure, insurers might want to embrace that hospital in-network to fulfill regulatory necessities. Relatedly, hospital techniques might insist that insurers take all system members in the event that they want to embrace one).

Collecting knowledge on every insurer’s community of physicians is a frightening process. Fortunately, the University of Pennsylvania’s Leonard Davis Institute of Health Economics (LDI) and the Robert Wood Johnson Foundation (RWJF) have collectively undertaken this effort and posted info on the doctor networks of each silver plan provided on each HIM in 2014. In complete, the info symbolize 394 supplier networks provided by all 267 insurers collaborating within the marketplaces.

For every doctor community in every state, LDI calculated the share of training physicians who’re in-network (within the “score areas” inside the state the place the community is obtainable). We censor each 5 % tails of community breadth. For every state, we calculate the usual deviation of community breadth (counting every community as soon as) (Note 2).

The Relationship Between Innovation And Market Concentration On The Public Exchanges

Figure 1 charts the connection between market focus (measured by the state personal health insurance coverage HHIs) and innovation (measured by the usual deviation of community breadth in every state). We weight every statement by the inhabitants of every state, as mirrored within the measurement of the info factors on the graph. The correlation coefficient is statistically indistinguishable from zero: there isn’t any proof of larger innovation in additional concentrated markets.

Figure 1



This evaluation has an apparent limitation: there’s a “mechanical” hyperlink between the variety of networks in a state and the usual deviation of community breadth. For instance, the usual deviation of community breadth is tautologically zero in a state with just one community. States with extra insurers will routinely have extra networks (as long as insurers don’t precisely copy each other) and there could also be an “artificial” relationship between the variety of insurers and our measure of innovation.

To handle this concern, we carried out simulations to find out how the usual deviation of community breadth varies with the variety of insurers (Note three). We then constructed an “adjusted community breadth deviation” by taking the ratio of our unique measure from Figure 1 and the anticipated commonplace deviation of community breadth given the variety of insurers within the state.

Figure 2


Figure 2 presents the connection between market focus and the usual deviation of community breadth relative to what can be anticipated based mostly on the variety of insurers within the state. Numbers bigger than one point out that the networks within the state are extra dispersed than we might anticipate based mostly on probability. The preponderance of factors lower than one reveals that networks in most states are much less dispersed than we might anticipate based mostly on probability. We proceed to discover a adverse slightly than a constructive affiliation between insurance coverage focus and innovation—if something, innovation is decrease in states with extra consolidated insurance coverage markets (a one-sided t-test yields a p-value of zero.17).

Putting It All Together: What Are The Implications For Insurance Mergers?

The backside line is there isn’t a proof of higher product innovation in additional concentrated insurance coverage markets. As with most cross-sectional analyses, the info we current is suggestive slightly than definitive. There are potential omitted elements that would clarify our end result.

For instance, residents of states with giant insurers might have a stronger choice for broad networks, main insurers to supply a smaller vary of plan breadths (i.e., very broad networks) in these states. Of course, additionally it is potential—and maybe extra believable—that insurers in additional concentrated markets are much less motivated to innovate as a result of it isn’t essential to retain clients.

Given the historical past of sluggish innovation in health insurance coverage, one might argue that a change in insurance coverage markets is important to stimulate extra. To date, there isn’t any proof that consolidation will probably be that catalyst.

Note 1

To be extra exact, we’re suggesting that a imply preserving unfold of community breadth – i.e., a rise in product selection – represents extra innovation.

Note 2

We can’t assemble weighted common values as a result of enrollment knowledge haven’t been launched in most states, together with all federally facilitated HIMs.

Note three

We carried out three steps:

  1. For every state, we constructed an artificial pattern of insurers from the set of insurer x state observations, sustaining the state’s precise variety of insurance coverage members within the 2014 trade. We then calculated the imply and commonplace deviation of community breadth for every artificial pattern.
  2. We repeated the first step 10,000 occasions. This resulted in 10,000 simulations of the imply and commonplace deviation of community breadth for every state.
  3. For every state, we retained the 500 simulations with a mean community breadth closest to the precise common community breadth of the state. We calculated the imply of the usual deviations for these 500 estimates.

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