The head of the U.S. Justice Department’s Antitrust Division warned health insurers May 24 that deals that expand the market share of a dominant plan will be heavily scrutinized, if not killed.

Christine A. Varney

If the department finds concerns about competition or undue market concentration, “we will not hesitate to block the merger or to require the settlement concessions necessary to protect consumers,” said Christine Varney, an assistant attorney general.

Such scrutiny is necessary to protect the integrity of health exchanges, where small businesses and individuals will be able to compare prices and obtain insurance, starting in 2014. Therefore, policing health insurers’ possible deals to preserve consumer choice in the health insurance market is a new priority for her department since the passage of federal health care reform in March.

“Like many reforms driven by the power of competition to create consumer welfare, the success of these legislative and regulatory efforts will depend as much upon healthy competitive markets free from undue concentration and anticompetitive behavior as it will upon regulatory change,” Varney said during a speech to a trade conference on antitrust and health care, sponsored by the American Bar Association and the American Health Lawyers Association.

“In short, enactment of the Affordable Care Act makes effective antitrust policy more important than ever,” she said.

Michigan merger nixed

Varney said an example of her office’s approach can be found in the failed merger attempt in March of Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan, where her office intervened, fearing a “substantial lessening of competition in the Lansing market for commercial group health insurance and in the market for the purchase of physician services.” The Blues had a 70% market share, while Physicians about a 20% share, Varney said.

Antitrust division staff has found “over the last 10 years in numerous investigations across the country” that many providers provide the best discounts only to insurers with “significant market shares,” Varney said.

“Thus, new entrants cannot negotiate for competitive provider discounts because they have few enrollees and they cannot win new enrollees because they do not have competitive discounts,” she said. As a result, expansion into new geographic regions or for small insurers is “difficult,” she added.

An internal antitrust division study into health insurance markets, involving interviews with insurance brokers, economists, regulators and health plans, affirmed that scale is the biggest obstacle to insurers’ entry or expansion in the small- or mid-sized employer market, Varney said.

Competitive landscapes

That study also determined that it is easier for insurers to enter less concentrated markets, where competition is between several large but relatively equal-sized insurers, than entering a market where one or two dominant plans reign, she said. Also, the study indicated that new entrants or niche market players are more likely to obtain provider discounts similar to their competitors in less concentrated markets than those market dominated by one or two big insurers.

“The infrequent entry of new choices makes it even more important to preserve the choices already available,” Varney said.

The American Medical Association reported in February that the two largest health insurers had a market share of 70% or more in 24 of the 43 states it investigated for health insurance market penetration. In 2009, just 18 of 42 states had two insurers with a combined market share of 70 percent or more, the AMA reported, noting “a near total collapse of competitive and dynamic health insurance markets.”

Varney described “the ultimate goal of health care reform,” saying it is “to harness the power of competition, together with regulation, to expand coverage, improve quality and control the cost of health care for all Americans.”