The following sections review the structure of health insurance markets in the states and the changes that occurred in those markets between 1995 and 1997. These observations of the states’ group and individual markets underlie our subsequent analysis of regulatory impacts. A more detailed description of these markets is provided elsewhere (Chollet, Kirk and Chow, forthcoming). The data presented below are from the Alpha Center Health Insurer Database compiled with grant funding from the Robert Wood Johnson Foundation; the compilation of these data is described in detail in Appendix 1. The data include 49 states and the District of Columbia; they exclude Hawaii, which does not require HMOs to report their business.

A. Group Health Insurance Markets

Group major medical insurers in the US – including commercial insurance, Blue Cross and Blue Shield plans, and HMOs – wrote approximately $145 billion in earned premiums in 1997. HMOs wrote nearly 45 percent of this business, followed by Blue Cross and Blue Shield plans (36 percent) and commercial insurers (19 percent). Between 1995 and 1997, total earned premiums aggregated across all states rose 19 percent, reflecting high growth in earned premiums in some states (Alaska, Georgia, Indiana, New York, North Carolina, and Wyoming) and modest declines in a few.²

The number of insurers per state varies dramatically among the states: in 1996 Texas had 94 insurers writing group coverage, while Alaska had 14. On a population-adjusted basis, the number of insurers per state is somewhat more equal: smaller population states and states where commercial insurers hold a larger share of the market typically have more insurers writing business. In 1997, Delaware, South Dakota and Wyoming had the largest number of insurers per capita; while California, New York, and Texas had the fewest (see Figure 1).

Between 1995 and 1997, the distribution of the group market among types of insurers changed in important ways. The number of insurers, multiplied by the number of states in which they wrote business, grew nearly 4 percent (see Table 6). Most of this growth was a result of the formation of new HMOs and existing HMOs expanding into new states; during this period, the number of HMOs writing group coverage, multiplied by the number of states in which they wrote business, increased 22 percent. HMOs’ aggregate market share rose nearly 3 percentage points, largely at the expense of Blue Cross and Blue Shield plans, despite significant activity among BCBS plans that resulted in a net increase in the number (including BCBS HMOs) writing coverage. Nevertheless, in the aggregate, Blues plans lost market share. In contrast, the commercial market very nearly maintained market share (contracting less than a point). However, the number of commercial insurers declined: some insurers merged, and in some states they exited.

In most states, the group health insurance market is highly concentrated: in 31 states, the largest three group insurers hold more than one-half of the market; in all but seven states,³ the largest three insurers hold at least 60 percent of the market (see Figure 2). Conversely, in all states the smallest 50 percent of insurers hold less than 10 percent of the market.

B. Individual Health Insurance Markets

The individual health insurance market is much smaller than the group market, both in terms of the dollar volume of premiums earned and the number of insurers writing business. In 1997, insurers wrote $8.2 billion in earned premiums in the individual market – less than 6 percent of the volume of business that insurers wrote in the group market. BCBS plans dominate the individual market, writing fully 50 percent of all earned premiums in the individual market in 1997. Commercial insurers and HMOs nearly evenly divided the rest of the market, holding 24 percent and 26 percent, respectively. Between 1995 and 1997, total earned premiums in the individual market, aggregating across all states, rose just 7 percent. As in the group market, the national change masks significant variation among states: some states (California, Delaware, North Dakota and Utah) showed large growth in the volume of premiums written between 1995 and 1997 – reflecting growth in insured lives, growth in average premiums, or both. In other states (Connecticut, Idaho and Michigan), the volume of business in the individual market declined. These declines may reflect lost coverage; however, it seems likely (given the modest growth in group coverage over these years) that they represent movement between the individual and group markets.

As in the group market, the number of insurers per state varies dramatically among the states: in 1997, New York and Texas had more than 40 insurers writing individual coverage, while six states (Alaska, Delaware, Idaho, Rhode Island, Utah, Vermont) and the District of Columbia had fewer than 5 insurers in this market (see Figure 3). Unlike the group market, in the individual market the number of insurers on a population-adjusted basis varies about as widely as the unadjusted number: Wyoming and South Dakota have many individual insurers per capita (related to their very small populations), while the most populous states (California, Michigan, New Jersey, Ohio, Pennsylvania, and Texas) have fewer than two individual insurers per million population.

Between 1995 and 1997, the changes observed in the group market also occurred in the individual market (see Table 7). The number of HMOs writing group coverage, multiplied by the number of states in which they wrote business, increased 16 percent (compared to 22 percent in the group market), but the share of the market that HMOs held rose more than 10 percentage points. BCBS plans consolidated in the individual market and still lost significant market share (nearly 4 points); commercial insurers exited the market in some states (sometimes through merger or acquisition, as in the group market) and nationwide lost more than 7 points of market share. In summary, at the end of the three year period, significantly more HMOs were writing individual coverage (sometimes, as in New York and Maine, required by the state to do so), and they held substantially more market share.

Like the group market, the individual health insurance market is extremely concentrated – a fact that is only partly explained by the very large average market share that BCBS plans hold. In all states, the largest three group insurers hold more than one-half of the individual market, and in 20 states the largest three insurers hold more than 80 percent of the market (see Figure 4). However, the residual of the market in many states is highly fragmented: the smallest 50 percent of insurers hold more than 20 percent of the market in only five states (New Hampshire, New Mexico, Alabama, West Virginia and South Dakota). The average insurer in the individual market survives on very low premium volume, relative both to the average insurer in the group market and to the largest insurers in the individual market.

2 - These data exclude self-insured group health plans and also stop-loss coverage to the extent that we could distinguish primary coverage from stop loss. Conversion of self-insured coverage to HMO coverage would represent an addition to health insurers earned premiums. The group data also include association plans, which at least one large domestic insurer formed almost entirely from its individual business between 1995 and 1997. Nationally, the volume of business related to association plans is unknown.

3 - New York, Indiana, Tennessee, Texas, Illinois and Wisconsin.