Mergers of Medical Insurers Faulted

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The Los Angeles Times

Consumers across the nation now have fewer choices for medical coverage as health insurers have gobbled one another up in recent years, leaving only a handful of powerful players, according to a study by the American Medical Assn.

Reduced competition in many markets has resulted in increased premiums for patients but fatter profits for insurance companies, industry critics say.

As if to prove the point, UnitedHealth Group Inc. said Tuesday that its first-quarter profit jumped 21%. The country’s second-largest insurer has 12 million members in California thanks to its purchase of Cypress-based PacifiCare Health Systems Inc. in December.

In the last five years, health insurance premiums in the state have gone up more than 70%, the Kaiser Family Foundation said.

“It doesn’t take a rocket scientist to realize that a handful of insurance companies with a stranglehold on the market can raise rates,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights.

Insurance companies disputed the AMA‘s findings, which were published Monday, and the contention that rising premiums were tied to higher profits. They said expensive new drugs and medical treatments were to blame for higher premiums.

The AMA study found that in the last decade, there have been more than 400 consolidations involving medical insurers.

The doctors group also reported that in more than half of the 294 metropolitan areas surveyed, a single insurer controlled 50% or more of the market. Researchers looked at the number of people who belonged to either a health maintenance organization or a preferred provider organization plan.

In the Los Angeles metropolitan area, which includes Long Beach and Glendale, 61% of those insured under a PPO were customers of WellPoint Inc., which was formed in 2004 when Indianapolis-based Anthem Inc. bought Thousand Oaks-based WellPoint Health Networks Inc.

In California, WellPoint had 50% or more of the PPO market in 15 of the 27 metropolitan areas surveyed. State regulators said they were watching WellPoint‘s profit to make sure consumers were not paying the price with higher premiums. WellPoint runs Blue Cross of California and Blue Cross Life and Health, the largest operators of PPO plans in the state.

The HMO market was dominated by Kaiser Permanente, a nonprofit that runs its
own network of healthcare providers. But in some areas, for-profit companies had
a stronghold on HMO plans, according to the AMA. PacifiCare, now UnitedHealth, had 99% of the HMO market in El Centro, for example. WellPoint had 78% in Salinas.

“It goes against what we believe are the American principles that a level playing field and competition is good for consumers,” AMA board member James Rohack said. “The more competition you have, companies will have to keep premiums under control. Without competition, patients don’t have a choice.”

Patients, however, have plenty of choices, insurers countered. There is still fierce competition, the companies said, and takeovers and consolidations have led to more efficient operations.

UnitedHealth credited greater efficiency for the company’s record first quarter. Net income was $899 million, or 63 cents a share. But its stock sank $2 to $49.67 on a less optimistic forecast for 2007.

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