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Retraction: Health Insurance Market Concentration

Note: We are retracting one of our Sept. 10 criticisms of President Obama’s speech on health care. We said that he "overstated the degree of concentration in the insurance industry." We have continued to research the subject, and the following information turned up by our reporter D’Angelo Gore has led us to change our judgment. While the president may have overstated the findings of one study, we have now found others that show market concentration at least as severe as he described.

Brooks Jackson
Director, FactCheck.org

During his health care speech to Congress and the nation on Sept. 9, President Obama said that in many U.S. states the health insurance market is controlled by just a few companies.

Obama, Sept. 9: Unfortunately, in 34 states, 75 percent of the insurance market is controlled by five or fewer companies. In Alabama, almost 90 percent is controlled by just one company.

We reached out to the White House to find the source for the claim, but we didn’t receive a response. His figures almost certainly came from a report the nonpartisan Government Accountability Office made earlier this year to members of Congress. The GAO said: "The five largest carriers in the small group market, when combined, represented three quarters or more of the market in 34 of the 39 states supplying this information."

That report was based on a 2008 survey of the "small group market," however, not the entire insurance market, as Obama suggested. Based on this, we wrote that the president "overstated somewhat the degree of concentration in the insurance industry." We contacted John Dicken, director of health care for GAO, who told us in a telephone interview that the report was indeed limited to the small group market only. "We did not look at the individual market or the large group market," he said.

But we continued to look into the matter this week and found support for the president’s broader claim. The American Medical Association says that the same degree of concentration occurs in the market for Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) as well.

An AMA spokesperson told us that while the group agrees that the president was likely referring to the statistic reported by the GAO, its own internal data, collected for a 2008 update for the publication "Competition in Health Insurance: A Comprehensive Study of US Markets," shows that "in all of the 42 states we examined, the combined market share of the five insurers with the largest shares is at least 75 percent." AMA says that its 2008 updated report was based on persons enrolled in the product market for HMOs and PPOs as of January 2006.

Furthermore, the AMA’s data are consistent with an earlier study by James Robinson, a professor of health economics at the University of California, Berkeley. His 2004 analysis also showed state insurance markets are dominated by a small number of companies. According to the study, "Consolidation and the Transformation of Competition in Health Insurance," the "top three firms typically dominate each market. … In only three state markets do the largest three plans control less than 50 percent of the total enrollment, and in only fourteen do the largest three plans control less than 65 percent."

We also noted in our article that a spokeswoman for BlueCross BlueShield of Alabama, the largest private insurer in the state, disputed a claim by the president that "[i]n Alabama, almost 90 percent is controlled by just one company." According to the spokeswoman, the company insured 2.4 million Alabama residents, but Census Bureau figures show nearly 3.2 million state residents are covered by private insurance, which would put the company’s share of the private insurance market at around 75 percent. AMA, though, reported in its 2008 update that BCBS of Alabama had an 89 percent share of the state’s combined product market for HMOs and PPOs.