Report: Connecticut’s individual insurance market is highly concentrated

Connecticut is one of 30 states in which more than half the individual insurance market is dominated by a single insurer, but has more insurers with at least 5 percent of the market than nearly half the other states, according to a report released Thursday by the Kaiser Family Foundation.

The report examined the competitiveness of states’ insurance markets and the potential implications for federal health reform. Authors Cynthia Cox and Larry Levitt noted that concentration in the insurance market can be good and bad for health care costs.

“While a dominant insurer in a state may face little competition and may be able to command higher premiums and profits, it may also be in a better position to negotiate lower rates with doctors and hospitals,” they wrote.

Cox and Levitt found significant variation in the level of competition in different states’ insurance markets. In Alabama, the largest insurer accounted for 86 percent of the individual market based on enrollment in 2010, while in Wisconsin, the largest carrier had just 21 percent. In Connecticut, the largest insurer had 52 percent of the individual market.

The report also looked at the number of insurers with more than 5 percent market share in each state. Connecticut had four in the individual market. Colorado, Georgia and Oregon each had seven, while North Carolina had only one, and 11 states had two.

Another measure, the Herfindahl-Hirschman Index, rates how evenly market share is spread across insurers. The index has a range from 0 (more competitive) to 10,000 (less competitive), with a rating above 2,500 generally considered highly concentrated. Connecticut’s individual market scored 3,375, while its small group market received a score of 2,429, which suggests moderate concentration.

In the small group market, Connecticut’s largest carrier had 31 percent of the market, and five carriers had more than 5 percent market share. Nationally, the market share among the largest small-group carriers ranged from 26 percent in Oklahoma and Oregon to 96 percent in Alabama.

Levitt, a senior vice president at the Kaiser Family Foundation, said some of the variation could be explained by geography. In rural states with fewer people and health care providers, it would be difficult to support competing insurers, he said. In some states, the market share was shaped in part by history, he said, noting that Blue Cross Blue Shield plans, which are the dominant insurers in many markets, have been around a long time and some had regulatory advantages in the past. Connecticut’s largest insurer is Anthem Blue Cross and Blue Shield.

Levitt said insurance market reforms that are part of federal health reform should push markets toward greater competition. Consumers buying individual market plans will have an easier time shopping around and comparing plans, he said.

In addition, the federal law calls for the creation of national insurance plans, at least one of which would be nonprofit, and funding to launch nonprofit, member-run Consumer Operated and Oriented Plans, or CO-OPs, which could increase competition, Levitt said.

Cox and Levitt wrote that market competition will likely influence decisions states make in implementing health reform. Each state must have a health insurance exchange by 2014, which will serve as a marketplace for individuals and small businesses to buy coverage. States can let all plans that qualify be sold on the exchanges, or be more selective about which ones can be sold, a model known as an active purchaser.

Cox and Levitt noted that states with fewer insurers and less competition might favor an active purchaser approach, but that in states with just one dominant insurer, it could be difficult economically and politically to potentially exclude it from participating in the exchange. Connecticut is expected to use the active purchaser model.