A woman speaks with pedestrians about the need for policymakers to protect Medicare Advantage benefits during the Coalitio...

Is private-sector Medicare becoming a monopoly?

Editor’s Note: Journalist Philip Moeller, who writes widely on health and retirement, is here to provide the Medicare answers you need in “Ask Phil, the Medicare Maven.” Send your questions to Phil.

Good morning class. Today, we are going to learn about something called the Herfindahl-Hirschman Index, or HHI. Gesundheit, you say? Me, too. Anyway, put down your smartphones for a few minutes, and listen up. Of course, if you’re reading this on your smartphone, then keep at it with both thumbs blazing.

The HHI is a statistical method for evaluating whether a market for goods of services is highly concentrated, moderately concentrated or non-concentrated. A study released today by the non-profit Commonwealth Fund calculated the HHIs of Medicare Advantage (MA) health plans offered in more than 2,900 counties around the U.S. It finds that 97 percent of these counties had highly concentrated Medicare Advantage markets.

Looking just at the 100 most populous U.S. counties — those with the most beneficiaries and the largest numbers of available Medicare Advantage plan — 81 were highly concentrated, 18 were moderately concentrated and only a single county was non-concentrated. The good people of Riverside, California may now stand up and take a bow.

Medicare Advantage plans are roughly 10 years old in their current form. The Medicare Modernization Act of 2003, which created prescription drug coverage under Medicare, also triggered changes that have allowed private insurance companies to expand and improve their Medicare plans under the Medicare Advantage label.

From a very modest beginning, more than 30 percent of all Medicare beneficiaries subscribe to Medicare Advantage plans today. The other 70 percent use what’s called Original Medicare, which includes Part A for coverage in hospitals and other inpatient facilities and Part B for coverage of doctor, outpatient and medical equipment expenses. Many Original Medicare beneficiaries also buy Medicare supplemental policies, often called Medigap plans.

You’ve probably seen recent news reports about the agreed-upon mergers among four of the nation’s five largest health insurers. Aetna and Humana have agreed to combine, as have Anthem and Cigna. The largest health insurer, UnitedHealthcare, reportedly was interested in more than one of these other four companies at some point during this summer’s health insurance mating rituals.

With these mergers, perhaps you are not surprised about these findings from the Commonwealth Fund’s study. But your eyes might open just a wee bit wider to learn that the study was based on Medicare Advantage plan activity in 2012 – fully three years before these latest mergers! Now, there is not a whole lot of room above 97 percent for further concentration in local markets. But I bet these mergers would get us most if not all of the way there.

The Commonwealth Fund’s study echoes a report from the Kaiser Family Foundation that looks at more current data — 2015 Medicare Advantage plan enrollments. “Six firms or BCBS [Blue Cross Blue Shield] affiliates account for almost three-quarters (72 percent) of the market.” Kaiser said. “Two firms, UnitedHealthcare and Humana, account for almost four in ten Medicare Advantage enrollees.”

In a third of the states, Kaiser said, three insurers had market shares of 90 percent or higher. And in 15 states, a single firm controlled 50 percent or more of the Medicare Advantage market.

The popularity and profitability of Medicare Advantage plans was widely cited as a driver for this summer’s health insurance merger deals. But the near-certainty that these mergers would further reduce what little competition there is among the plans has sparked a considerable backlash against them.

The question of the day, of course, is whether market concentration actually does permit or encourage noncompetitive business behaviors that either reduce the quality of health insurance provided by a plan, raise its prices and profits or both.

Traditional antitrust analysis would say it does. The Commonwealth Fund study, for example, notes that the HHI is used by antitrust regulators at the U.S. Department of Justice and the Federal Trade Commission. And there is a widespread expectation that approvals of an Aetna-Humana deal, as well as the Anthem-Cigna deal, will hinge on the companies having to dispose of or perhaps discontinue offering Medicare Advantage plans in a number of local markets around the country.

As Medicare deficits grow, so does pressure to find ways to change the long-term trajectory of rising federal health care deficits. One approach popular with conservative critics of Medicare would be to institute a “premium support system” that would limit or cap federal Medicare spending. These support payments would be given directly to Medicare beneficiaries, and they in turn would shop for health coverage from private insurers. Doing so, supporters say, would work in part because the private market is more competitive and efficient.

However, that premise just doesn’t hold up to the data in the Commonwealth Fund report, according to economist Stuart Guterman, one of the report’s three authors who is now doing research at AcademyHealth [CQ], a Washington non-profit. “There’s an assumption that if you rely on private markets you will get competition,” he says. “People who say that Medicare should be less regulated are ignoring the fact that the private market does not have much competition anyway.”

At the same time, direct measures of Medicare Advantage plan concentration do not tell the whole story. Medicare regulations are being used to produce competitive behavior even among the concentrated pool of Medicare Advantage insurers. For example, the agency is now basing its payments to Medicare Advantage plans on the quality of their coverage and services, as measured by Medicare’s star ratings system. Many plans have responded with notable quality improvements, and low-rated plans have left the marketplace.