Competition and Concentration in Health Insurance

Many people have bandied about numbers suggesting that the market for health insurance is highly concentrated.  Here is the President:

Consumers do better when there is choice and competition. Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, almost 90% is controlled by just one company….

But these statistics only include people insured by "insurance companies" even though nationally just over half of all employees get their health insurance from a firm that self-insures.  In other words, as John Lott points out, over half of the market for insurance is being left out of these concentration statistics.

Since about half of employees are insured by a self-insurer, concentration statistics–as typically presented –should be cut roughly in half (precise numbers vary by state).  Firms that self-insure typically outsource benefits management and claim
administration to highly competitive third party administrators.  A key fact according to this paper (which is outdated although I wouldn't expect the basic finding to have changed) is that the populations served, the benefits paid and the premiums paid are about the same for firms that self-insure and firms that buy insurance from a health insurance company.  Thus, concentration among that part of the market served by health insurance firms appears to be well disciplined by the larger market for self-insurance.


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