Vermont Health-Plan Premiums Soar As Insurers Face Less Competition

A few privat e health insurance companies have built a near-monopoly in the Vermont market, burdening families and businesses with premiums that grew 3.7 times faster than wages from 2000 to 2007. According to a 2007 report by the American Medical Association, Vermont’s largest health insurer holds a 77 percent share of the market. The U.S. Justice Department considers a market “highly concentrated” if one company holds more than a 42 percent share of that market.

The problem is national. A nationwide survey by the Government Accountability Office found that the median statewide market share of the largest insurer selling coverage to small employer groups increased to 47 percent in 2008 from 33 percent in 2002. Of the 29 states providing information in the 2002 and 2008 surveys, 24 states saw increases in the market share of the top carrier. Those increases ranged from about 2 to 39 percentage points. The combined market share of the five largest insurers providing coverage to small business groups represented at least three-quarters of the market in 34 of 39 states, compared to 26 of 34 states reported in 2005 and 19 of 34 states reported in 2002.

Without a public health insurance plan, the consolidation of private insurers will continue in its current trajectory. Health insurers play a unique role as both sellers of insurance and buyers of health care services. Unfortunately, these companies use their power as buyers against the smaller medical providers while cooperating with larger providers to increase profits for both. Insurers are not necessarily hurt by high prices from providers; insurers would only feel the pain if other insurance companies were to pay less for medical services and use the savings to woo away customers. If Americans are forced to continue to depend on the private market for health insurance, insurers will continue to drive prices as high as they want with no fear of decreased demand— and consumers will continue to suffer from escalating rates and worse coverage.

These are not theoretical behaviors, and they underscore the fatal flaws in our national insurance market and the need for government intervention in the form of a public insurance option. Insurers have been exposed numerous times for rigging the system. An investigation by the Boston Globe in December 2008 exposed a, “gentleman’s agreement that accelerated [the] health cost crisis.” The chiefs of the largest provider group in Massachusetts and the state’s largest health insurer made a handshake deal to avoid creating written evidence of the arrangement. In that agreement, Blue Cross Blue Shield of Massachusetts pledged to increase payments if the provider group, Partners HealthCare, ensured that no other health plan would be charged less.

When small, independent providers want to negotiate with multiple health plans, large insurers exert enormous pressure to stop them. The statewide trade group for doctors in New York sued UnitedHealth Group Inc., the nation’s second-largest health insurer by enrollment, for allegedly using illegal coercion in just such a scheme to limit competition.