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Medicare Advantage Market Competitive? Not So Much, Study Concludes

By John Reichard, CQ HealthBeat Editor

June 25, 2010 -- A small number of firms dominate the market for private health plans in Medicare, says an analysis released this week by the Kaiser Family Foundation.

"Although competition is a stated goal of Medicare Advantage, in fact the market is very concentrated and a few firms are responsible for plans that include a very large share of enrollees," said the analysis prepared by researchers with the consulting firm Mathematica Policy Research along with Kaiser analysts.

The analysis says people have many plans to choose from but that enrollment is concentrated in a handful. It notes, for example, that the average Medicare beneficiary in 2010 has 33 plans from which to choose. But in 14 states and the District of Columbia, a single company (not the same one in each state) accounts for more than half of all Medicare Advantage enrollment.

And in 27 states and the District, three companies account for 75 percent of more enrollees.

"With many highly concentrated markets, Medicare Advantage is more similar to an oligopolistic market than a competitive market," the analysis says. Dominance by a few firms "may allow them disproportionate influence over the Medicare Advantage market."

The biggest players in the "MA" market are United Healthcare, which has an 18 percent share; Humana, with 15 percent, and Blue Cross-Blue Shield plans, with 15 percent. Kaiser Permanente has 9 percent and Aetna 4 percent.

Among the firms with market shares in individual states topping 50 percent are United Healthcare, Humana, and Kaiser. Two-thirds of Medicare Advantage enrollees in the District of Columbia are in Kaiser Permanente.

The study also found that enrollment in Medicare Advantage plans nationally in 2010 climbed 5.7 percent to 11.1 million, up from 10.5 million in 2009. Average monthly premiums for MA plans with prescription drug coverage rose 22 percent to $44, up from $36 the year before.

Industry analysts predict an increase in out-of-pocket costs in MA plans as cuts in the overhaul law take effect in 2011 and following years. They say a number of plans in the fall of 2011 will announce they are withdrawing from the market in 2012, further consolidating the market.

But the Kaiser analysis says that "with payment changes phased in gradually, Medicare Advantage plans are likely to remain a key option for beneficiaries in the future."

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