Indiana’s least competitive places to buy health insurance

By one measure, the biggest impacts of Anthem Inc.’s pending $54 billion acquisition of Cigna Corp. would happen right here in Indiana.

The American Medical Association made news this week with a report that identified 85 markets around the country where Anthem Inc.’s pending acquisition of Cigna Corp. would significantly enhance its market power. 

Twelve of those markets are in Indiana.

But the thing that caught my eye was that those 12 markets are already highly concentrated (meaning they have little competition), according to a methodology used by the U.S. Federal Trade Commission to determine such things.

In fact, eight Hoosier cities rank among the 20 most highly concentrated markets on the list of those 85 problem areas.

And two of the problem markets that have the most competition today—Indianapolis and Lafayette—would see some of the biggest increases in market concentration under the deal.

Put simply: The Anthem-Cigna merger would take most of Indiana from being not very competitive to really not very competitive.

The AMA ranked each metro area on competitiveness by calculating Herfindahl-Hirschman Index scores for each one. These HHI scores are calculated by squaring the market share percentages of the 50 largest companies. A score of 2,500 or higher is perceived as an uncompetitive market.

 Here is the AMA’s list of the least 30 competitive markets BEFORE the Anthem-Cigna merger: 

The next list shows how the metros would rank AFTER the Anthem-Cigna merger. Notice that Indianapolis would jump to the sixth least competitive market in Anthem's and Cigna's territories, up from 26th least competitive before the merger, and that Terre Haute and Anderson would be the second and third most concentrated markets, respectively.

But the most telling list is the next one, which ranks metros by the biggest change in competition from before the deal to after it. Four of the 10 metro areas that will see the biggest decrease in competition from the Anthem-Cigna merger are in Indiana—with Indianapolis facing the second-biggest hit to competition among all of Anthem’s markets nationwide.

Obviously, the physicians who are members of the AMA have a vested interest here. Greater market power among health insurers means, in general, lower payments to physicians.

“From a physician provider’s perspective in Indiana, one can assume that Anthem reimbursements were less than Cigna. Then if you assume that the Cigna business will fold over to Anthem, then providers will probably see a decline in reimbursement,” said Don Stumpp, who was a longtime contract negotiator for Indianapolis-based American Health Network before becoming CEO of an orthopedic practice in Illinois.

But what the AMA fails to note is how much more market power physicians now have than before. Independent physicians have very little negotiating leverage with dominant health insurers like Anthem, even today. But  most phyicians these days are employed by hospital systems, which have far more negotiating leverage.

And those hospital systems have gotten much larger since the last round of insurance mergers tailed off 10 years ago. While I have written that most of the smaller hospitals in Indiana have found a way to remain independent via lucrative partnerships with nursing homes, those that haven’t are moving to merge.

Just last week, Franciscan Alliance finalized its purchase of Jasper County Hospital in Rensselaer, Indiana.

Also last year, Wabash County Hospital merged with Parkview Health. In February, Clark Memorial Hospital announced a memorandum of understanding to be acquired by Norton Healthcare and LifePoint Hospitals. In July, Floyd Memorial Hospital said it had hired a consultant to evaluate its options for merging or affiliating with a larger hospital system.

My understanding is that the Indiana Department of Insurance will take into account the market power of doctors and hospitals as they look at the market power that the Anthem-Cigna merger would create. I expect other state regulators will do the same.

Whether that means they’ll block or approve the deal, who knows? But I wouldn’t expect them to rely solely on the AMA’s analysis to make a decision.