Study: Medicare Advantage Market Seen Becoming Increasingly Concentrated

A study published in the December issue of Health Affairs has found that the Medicare Advantage market has become more concentrated, a phenomenon with major policy and market implications. The article, entitled “Medicare Advantage: National Carriers Expand Market Share While Regional Carriers Without Affiliation Decline, 2012-23,” was written by G. P. Hnath, M.P.H., Michael McWilliams, and Michael E. Chernew.

Hnath is a doctoral student in the PhD Program in Health Policy at Harvard University; J. Michael McWilliams, M.D., Ph.D., is the Warren Alpert Foundation Professor of Health Care Policy and a professor of medicine at Harvard Medical School; and Michael E. Chernew, Ph.D., is the Leonard D. Schaeffer Professor of Health Care Policy, Department of Health Care Policy, Harvard Medical School, and director of the Healthcare Markets and Regulation Lab at Harvard Medical School.

The authors write in the abstract to the article that “This study examined the evolving landscape of insurer competition in the Medicare Advantage (MA) program from both national and local perspectives. Data from the Centers for Medicare and Medicaid Services revealed that the MA market has become more concentrated. National carriers expanded their national market share significantly from 2012 to 2023, whereas the collective market share of regional carriers without affiliation to Blue Cross and Blue Shield organizations declined because of acquisitions. For example, the combined national market share of national carriers increased from 46 percent in 2012 to 66 percent in 2023, while the combined national market share of non-Blue regional carriers decreased from 25 percent to 6 percent. Conversely, concentration in local markets has declined but remains highly concentrated, and evidence suggests that further declines may be unlikely.”

They add that, “Specifically, declines in local market concentration have been limited to markets with low MA penetration. Once MA penetration exceeds 20 percent, further MA growth is not associated with further drops in concentration, on average. Thus, policy makers should be aware that MA program reforms that assume MA markets are competitive are unlikely to achieve program goals without ensuring the competitiveness of those markets.”

Indeed, the researchers note, “The degree of competition in MA varies geographically and has been changing. Specifically (and paradoxically at first blush), the national MA market has become more concentrated (that is, less competitive) while local markets (counties) have, on average, become somewhat less concentrated (that is, more competitive). This pattern has emerged as large MA carriers have expanded the number of counties they serve. Thus, a major question is whether the increasing competitiveness of local markets should be expected to continue after larger insurers establish a presence in a high proportion of markets.”

Significantly, five major national carriers increased their combined market share from 46 percent in 2012 to 66 percent in 2023.

And, per that, the researchers write, “the degree to which policy makers should be concerned with the growing share of national carriers and high concentration in many local markets depends on two factors”—whether it is producing better value—better benefits or lower premiums—and the perception of “how much competition is enough?” As the researchers note, “MA plans are paid more than would be spent in traditional Medicare, and competition drives how much of that additional payment is passed through to beneficiaries in the form of more generous coverage at lower premiums.”

And, the authors, write, “[C]ompetition becomes even more salient if MA reforms make the benchmarks [in MA contracts with providers] a function of bids (for example, competitive bidding). IN that case, even if MA plans offer better benefits, imperfect competition can lead to much higher Medicare spending unless a cap on benchmarks is imposed.”

The bottom line? “[P]olicy makers should be aware that MA program reforms that are built assuming that MA markets will be competitive are unlikely to achieve program goals without ensuring the competitiveness of those markets.”