Report: 2 firms dominate Hampton Roads' insurance market

Two companies dominate commercial health insurance in Hampton Roads, according to a recent report from the American Medical Association.
 
WellPoint, the parent company of Anthem Blue Cross and Blue Shield of Virginia, had a 70 percent share of the preferred provider organization, or PPO, market, while Optima Health, the insurance arm of Sentara Healthcare, had 58 percent of the health maintenance organization, or HMO, market.

That kind of domination leads to higher premiums for consumers and lower reimbursements for physicians, said Dr. James Rohack, immediate past president of the medical association. Insurers pocket the difference in profits, he added.

"You've taken away one of the American principles - that is, when you have competition, quality goes up and price goes down," Rohack said.

However, insurers, their advocates and economists disagreed with some of Rohack's claims, saying medical costs are what drive up premiums, and that big insurance companies strongly compete for business. Some rejected the analysis by the doctors' association as biased and self-serving.

"Competition in Virginia is well when it comes to health insurance," said Scott Golden, an Anthem spokesman. "We don't really give credence to self-serving studies like this."

The report, from the nation's doctors organization, quotes numbers from 2008 about two primary types of health plans in which doctors and hospitals contract with insurers.

It showed that WellPoint held a 61 percent share of the combined market for HMOs and PPOs in Hampton Roads. Optima was second with 15 percent.

An HMO generally requires patients to designate a primary-care physician and is more restrictive about paying for care outside its network of physicians. A PPO allows patients to receive some coverage when they visit providers that aren't in the network.


Most economists agree that health insurance markets have consolidated the past decade.

HMO companies folded into other insurers, and the industry evolved from being predominantly local to having a more national reach, said Mark Pauly, a professor of health care management with the University of Pennsylvania's Wharton School.

Also, some affiliates of the Blue Cross and Blue Shield Association started seeking more market share as they converted to for-profit companies, and insurers looked to build power to stand up to merging hospitals, he said.

Companies affiliated with Blue Cross and Blue Shield have long ruled in many states, including Virginia, economists and insurers say. The association's predecessors date to the 1920s and 1930s, when they began prepaid hospital and medical expense policies for groups. Organizations administering the benefits originally were tax-exempt, but in the mid-1990s, the association began allowing affiliates to be for-profit corporations.

WellPoint, formed in a 2004 merger between WellPoint Health Networks and Anthem, is the largest insurer in the Blue Cross and Blue Shield Association.

The American Medical Association's study shows WellPoint with 57 percent of Virginia's combined HMO and PPO business in 2008. Aetna was second with 12 percent.

Anthem's Golden and Doug Gray, executive director of the Virginia Association of Health Plans, said they didn't think the study's numbers accurately represented the market. They pointed out that numbers weren't included for self-funded HMO plans, where employers assume the financial risk for providing health care benefits to employees.

John DeGruttola, Optima's senior vice president of sales and marketing, said his company submits numbers to the research firm used by the medical association, but some of the percentages seemed to be incorrect.

Though Golden agreed that Anthem was the leader, he said the company's share is significantly smaller - about 35 percent of the insured population in Virginia, including people covered by HMOs, PPOs and other types of 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," he said.

The biggest advantage for market leaders is their negotiating power with physicians and hospitals, said Paula Wade, principal analyst with HealthLeaders-InterStudy, the research company that compiled the data used by the medical association. Health care providers miss out on patients if they don't join the network of the insurer with the most members.

"The force that makes the big get bigger in this business is that ability to negotiate a lower rate," Wade said. "Because if you're negotiating lower rates, the likelihood is you can probably sell your product for a little cheaper."

Wade and Pauly, the University of Pennsylvania professor, dismissed the medical association's claim that insurance market concentration leads to higher premiums for consumers.

Those increases are driven by new medical technologies and innovations, growing usage of the health care system and even, according to Pauly, wages in the health care sector.

"It's been the only bright spot in the whole employment picture," he said. "But I wouldn't want to take the money away from the nurses and technicians and such."

He added that large employers should be capable of bargaining for satisfactory rates with insurers.

"If you are an individual or a small business, you're probably not seeing very many options," Pauly said. "But the consolation is that if the companies try to rip you off too much and embarrass themselves by making tons of money, other insurers probably would swarm in."

Provisions of the national health care overhaul are likely to influence insurers and their prices in the future.

Health insurance exchanges scheduled to start in 2014 could promote competition for business from individuals and small companies by providing a marketplace of plans that meet certain qualifications.

Additionally, starting this year, the law requires health plans to provide rebates to consumers if the share of a premium spent on clinical services and quality is less than 85 percent for large-group plans and 80 percent for individual or small-group plans.

"With that rule, it gives health plans a whole lot less ability to essentially gouge consumers," Wade said.

Both Wade and Pauly said another type of consolidation could do more to drive up health costs: hospital mergers.

If a provider dominates a market, a health insurer has little choice but to do business with the company.

"When you have that balance of powers, that's when you can have a pretty good result," Wade said. "Either that or you have a really, really high-cost market."

 

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