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The Dose - JK Wall

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Insurers / Insurance / Anthem / Health Care & Insurance

Indiana’s least competitive places to buy health insurance

September 11, 2015

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: 

City State HHI
Danville VA 7,177
Harrisonburg VA 5,473
Terre Haute IN 5,436
Owensboro KY 4,993
Blacksburg-Christiansburg-Radford VA 4,902
Anderson IN 4,803
Lynchburg VA 4,484
Salinas CA 4,446
Roanoke VA 4,358
Elkhart-Goshen IN 4,328
Michigan City-Laporte IN 4,064
Bowling Green KY 3,986
Muncie IN 3,771
Kokomo IN 3,764
Bloomington IN 3,748
Warner Robins GA 3,701
Winchester VA-WV 3,663
Fort Wayne IN 3,595
Hinesville GA 3,543
Richmond VA 3,514
Evansville IN-KY 3,419
Columbia MO 3,405
Santa Barbara-Santa Maria CA 3,371
Dalton GA 3,340
Norfolk-Newport News VA-NC 3,333
Indianapolis IN 3,299
Lewiston-Auburn ME 3,234
Charlottesville VA 3,212
Albany GA 3,142
New Haven CT 3,139

 

 

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.

    HHI HHI
City State Before After
Danville VA 7,177 7,724
Terre Haute IN 5,436 7,047
Anderson IN 4,803 6,073
Harrisonburg VA 5,473 5,987
Dalton GA 3,340 5,924
Indianapolis IN 3,299 5,716
Owensboro KY 4,993 5,589
Blacksburg-Christiansburg-Radford VA 4,902 5,528
Lynchburg VA 4,484 5,436
Richmond VA 3,514 5,241
Kokomo IN 3,764 5,191
Elkhart-Goshen IN 4,328 5,161
Michigan City-Laporte IN 4,064 5,135
Roanoke VA 4,358 5,069
Bowling Green KY 3,986 4,895
Salinas CA 4,446 4,888
Winchester VA-WV 3,663 4,851
Fort Wayne IN 3,595 4,762
Lafayette IN 2,780 4,762
Hinesville GA 3,543 4,695
Evansville IN-KY 3,419 4,621
Lewiston-Auburn ME 3,234 4,597
Warner Robins GA 3,701 4,587
New Haven CT 3,139 4,440
Bangor ME 2,884 4,427
Waterbury CT 3,108 4,403
Rochester-Dover NH 2,808 4,354
Muncie IN 3,771 4,299
Valdosta GA 3,113 4,291
Gary IN 3,059 4,274

 

 

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.

City State Before After Change
Dalton GA 3,340 5,924 2,584
Indianapolis IN 3,299 5,716 2,417
Lafayette IN 2,780 4,762 1,982
Richmond VA 3,514 5,241 1,727
Terre Haute IN 5,436 7,047 1,611
Rochester-Dover NH 2,808 4,354 1,546
Bangor ME 2,884 4,427 1,543
Manchester NH 2,683 4,215 1,531
Kokomo IN 3,764 5,191 1,427
Lewiston-Auburn ME 3,234 4,597 1,362
Hartford CT 2,426 3,783 1,357
Grand Junction CO 2,040 3,371 1,331
New Haven CT 3,139 4,440 1,300
Waterbury CT 3,108 4,403 1,295
Bridgeport-Stamford-Norwalk CT 2,442 3,723 1,282
Anderson IN 4,803 6,073 1,270
Nashua NH-MA 2,384 3,640 1,256
Fort Collins CO 2,457 3,711 1,253
Danbury CT 2,355 3,591 1,236
Columbus GA-AL 2,780 3,998 1,218
Gary IN 3,059 4,274 1,215
Portsmouth NH-ME 2,733 3,940 1,207
Evansville IN-KY 3,419 4,621 1,202
Winchester VA-WV 3,663 4,851 1,188
Valdosta GA 3,113 4,291 1,178
Fort Wayne IN 3,595 4,762 1,167
Savannah GA 2,389 3,549 1,160
Hinesville GA 3,543 4,695 1,152
Greeley CO 2,055 3,180 1,125
Rome GA 1,982 3,090 1,107

 

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.

City State before after
Danville VA 7,177 7,724
Terre Haute IN 5,436 7,047
Anderson IN 4,803 6,073
Harrisonburg VA 5,473 5,987
Dalton GA 3,340 5,924
Indianapolis IN 3,299 5,716
Owensboro KY 4,993 5,589
Blacksburg-Christiansburg-Radford VA 4,902 5,528
Lynchburg VA 4,484 5,436
Richmond VA 3,514 5,241
Kokomo IN 3,764 5,191
Elkhart-Goshen IN 4,328 5,161
Michigan City-Laporte IN 4,064 5,135
Roanoke VA 4,358 5,069
Bowling Green KY 3,986 4,895
Salinas CA 4,446 4,888
Winchester VA-WV 3,663 4,851
Fort Wayne IN 3,595 4,762
Lafayette IN 2,780 4,762
Hinesville GA 3,543 4,695
Evansville IN-KY 3,419 4,621
Lewiston-Auburn ME 3,234 4,597
Warner Robins GA 3,701 4,587
New Haven CT 3,139 4,440
Bangor ME 2,884 4,427
Waterbury CT 3,108 4,403
Rochester-Dover NH 2,808 4,354
Muncie IN 3,771 4,299
Valdosta GA 3,113 4,291
Gary IN 3,059 4,274
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