Insurance Merger Would Multiply Already Excessive Market Concentration

Recent months have brought forth formal announcements from several major health insurers – specifically, Aetna Inc. and Humana Inc., and Anthem Inc. and Cigna Corporation – of proposed mergers. These mergers are being scrutinized by the Department of Justice due to the scope of the proposed consolidations. A key factor in determining insurance market concentration is the Herfindahl-Hirschman Index (HHI). The HHI is calculated by summing the squares of an insurer’s market shares, giving proportionately greater weight to larger market shares. Markets with an HHI in excess of 2,500 are considered highly-concentrated and additional scrutiny is applied to any transaction that increases the HHI by more than 200 points in any market. This Research Corner item analyzes January 2015 data from HealthLeaders-Interstudy Managed Market Surveyor to examine the combined Anthem-Cigna market concentration in the majority of Virginia’s metropolitan statistical areas (MSA) and counties. (Due to an agreement known as the “Blues Rules,” Anthem does not do business in the Northern Virginia market as CareFirst Blue Cross Blue Shield services that market. Market share data for Hampton Roads was also unavailable for this analysis.) Two of the larger lines of business, commercial lives and administrative services only (ASO) lives, were evaluated for market share and the HHI. Overall in the commercial lives market, Anthem has a 58 percent market share and Cigna has a 9 percent market share. In the ASO product line, Anthem has a 53 percent market share, and Cigna has a 14 percent market share. Should the merger occur, the combined Virginia market share under both product lines would amount to roughly 66 percent. Looking at the market concentration through HHI, Anthem’s concentration is above 2,500 in both product lines and both lines of business. Anthem’s HHI ranges from a low of 2,806 to a high of 7,508 with most markets in the 3,500-6,000 range. Should the merger be completed, the post- merger index increases in the majority of Virginia counties would exceed 1,000, well above the 200 point increase that triggers additional scrutiny. Indeed, just one Virginia county would see a point increase less than 200. In the Richmond MSA, the HHI increase will exceed 1,600 – eight times the threshold for additional scrutiny. Below are maps of the two product lines which illustrate the combined market share should the merger occur. Based on the data, Virginia’s insurance market share is already highly concentrated and would become substantially more concentrated under consolidation. (6/3)

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