Health Insurance Monopoly: Myths vs. Facts

Includes: AET, ANTM, CI, IYH, UNH
by: Mark J. Perry

Fact #1: "America’s Health Insurance Plans (AHIP) is the national association representing nearly 1,300 member companies providing health insurance coverage to more than 200 million Americans. Our member companies offer medical insurance, long-term care insurance, disability income insurance, dental insurance, supplemental insurance, stop-loss insurance and reinsurance to consumers, employers and public purchasers."

Fact #2: "About 55% of those insured receive their insurance from a “self-insured” employer, where the employer acts as the insurer, rather than from a traditional insurance company. These "self-insured" employers often hire other firms, including insurance companies, to help administer the plans (they handle paperwork and form networks with doctors and hospitals). While employees often naturally think that the insurance company named on their insurance cards is providing the coverage, employers determine the details of coverage – from benefits to what premium the employee contributes – and they are responsible for putting aside money to cover employee medical costs.

The self-insured market consists of thousands of employers acting as insurance providers and competing for workers based on the salary they pay and the benefits they offer. Over 900 companies handle the administration of self-insured plans, with fees typically running three to eight percent of the total cost of insurance, depending on the employer’s size."

Fact #3: Definition of Monopoly: "A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition. In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare."

Myth #1: From the White House: "The health insurers’ monopoly is so strong that they can continue to jack up rates as much as they like – even if it means losing customers – and their profits will continue to soar under the status quo."

Myth #2: From President Obama: "Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, just one company controls almost 90% of the market. Without competition, the price of insurance goes up and the quality goes down."

Fact #4: "Given that self-insured firms cover over half of the people insured in those states, the total market share for the largest five insurers would average closer to 30% than 75%."

Conclusion: How can an industry with 1,300 firms possibly be described as a "monopoly" (one seller)?