Trends in Medicare Advantage Competition – National and Local Perspectives

Abstract

This study examines 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 reveal that the MA market has become more concentrated. National carriers have expanded their national market share significantly from 2012 to 2023, while the collective market share of regional carriers without affiliation to Blue Cross Blue Shield (non-Blue) has declined due to acquisitions. For example, the combined national market share of national carriers has increased from 46% in 2012 to 66% in 2023, while the combined national market share of Non-Blue regional carriers has decreased from 25% to 6%. Conversely, concentration in local markets has declined, but remains highly concentrated and evidence suggests further declines may be unlikely. Specifically, declines in local concentration have been limited to markets with low MA penetration. Once MA penetration exceeds 20%, further MA growth is not associated with further drops in concentration, on average. Thus, policymakers should be aware that MA program reforms that assume MA markets are competitive are unlikely to achieve program goals without ensuring the competitiveness of MA markets.

Introduction

The Medicare Advantage (MA) market now covers over half of Medicare enrollees and is expanding. MA depends heavily on competition, relying on plan bids to set payment to plans and benefits.¹ Evidence suggests that more competitive MA markets are associated with lower bids and more generous benefits.^2–4 Moreover, competition is central to MA payment reform proposals that rely on bidding to set benchmarks.⁵

The degree of competition in MA varies geographically and has been changing.^6–9 Specifically (and paradoxically at first blush), the national MA market has become more concentrated (i.e., less competitive) while local markets (counties) have on average become somewhat less concentrated (i.e., more competitive).¹⁰ 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 insurer establish a presence in a high proportion of counties. Have the decreases in local market concentration occurred predominantly in counties that were highly concentrated at baseline because of limited MA presence? Or has the recent growth of MA also been associated with increasing competitiveness in markets with high MA penetration?

This paper expands existing analysis of trends in MA enrollment and competition. We examine national enrollment trends by type of carrier and decompose enrollment growth into organic growth vs growth through acquisitions, as well as by growth in existing markets vs entry into new markets. Finally, we describe how the distribution of markets by categories of competitiveness has changed and examine the relationship between MA market penetration and competition.

The findings are relevant to several current policy debates. As favorable MA payment rates attract beneficiaries to MA and traditional Medicare’s (TM) share of the Medicare population declines as a consequence, the existing method for setting benchmarks, which relies on TM spending to set benchmarks, may become less viable. More broadly, much of the value proposition of MA hinges on the premise that competition drives carriers to pass through payments to beneficiaries in the form of better benefits or lower premiums. If competition within MA stagnates, efforts to ensure the value of MA may require greater regulatory oversight or stronger competition from traditional Medicare.¹¹

Study Data and Methods

Data

We use publicly available data from the Centers for Medicare and Medicaid Services (CMS) Contract-Plan-State-County (CPSC) Enrollment files from 2012–2023. While these files are available monthly, we focus on the December enrollment counts.

Variables

Plan types

We focus on coordinated care plans (CCPs), such as HMOs and PPOs, and Special Needs Plans (SNPs). We drop Employer Group Health Plans (EGHPs), which represent 17% of the market. We do so because plan design and enrollment in those plans is largely determined by employers, and EGHPs likely do not compete with plans offered to individuals without employer subsidies.

We map the insurance carrier, or “parent organization”, of each MA plan into several groups: National Carriers (Cigna, CVS, Elevance, Humana, and United), Regional Blues, Health System Integrated (e.g., Kaiser and UPMC), Medicaid-Oriented (e.g., Centene and Molina), Startups (e.g., Alignment and Clover), SNP-only (e.g., Mercy Care and Orange County Health Authority), and Non-Blue Regional Carriers (e.g., EmblemHealth and SCAN). Details on these categories can be found in the appendix.¹²

Measures of Concentration

We limit our analysis to markets in the 50 US states and the District of Columbia. Although we report the number of carriers in markets, our primary measure of concentration is the Herfindahl-Hirschman Index (HHI), an often-used measure of market concentration equal to the sum of squared market shares.¹³ The Department of Justice and the Federal Trade Commission now consider markets with HHIs between 1,000 and 1,800 to be moderately concentrated and those greater than 1,800 to be highly concentrated.¹³ For our analyses, markets with an HHI < 1,000 are defined as having “low” concentration and HHI between 1,000 and 1,800 as “moderate” concentration. Using the pre-2023 thresholds of concentration we add three other categories of concentration: HHI 1,800–2,500, which we call “moderately high”, HHI 2,500–5,000 which we label “high” concentration and HHI over 5,000, which we label “extremely high” concentration.

Acquisitions and Enrollment Growth Attributable to Acquisitions

We identified acquisitions based on changes in the parent organization for a MA contract, using the CPSC data. We confirmed these ownership changes with a manual review of online sources to confirm these were ownership changes rather than organizational rebranding or other minor changes in data labels (e.g., including or excluding “Inc.”). The full list is available in the appendix.¹² While some acquisitions may have occurred in the middle of the year, we follow the approach of the CPSC files to keep the parent organization constant within each year for simplicity.

To calculate enrollment changes attributable to acquisitions, we sum both direct and indirect enrollment changes. The direct enrollment changes attributable to acquisition consider only the enrollment in the acquired plan at the last observation before the change of ownership as attributable to the acquisition. This is the most concrete measure of the impact of acquisition on enrollment. Indirect enrollment changes attributable to an acquisition arise because the enrollment in the acquired carriers may have grown after the time of acquisition (in the absence of acquisition). Our measure of indirect enrollment effects assumes that the market share of the acquired and acquiring carriers in each market would have stayed constant in the absence of acquisition (i.e., both carriers would have grown at the same rate). For example, if the acquiring carrier had no presence in a market before the acquisition, we attribute all of its enrollment growth in that market to the acquisition. If the acquired carrier had 40% of the enrollment of the combined enrollment pre-acquisition, the direct effect of the acquisition is the enrollment acquired at baseline. The indirect enrollment effect includes 40% of the subsequent enrollment growth of the combined entity in the market.

In addition to acquisitions, we measured enrollment growth from new and existing markets, based on whether a carrier offered a plan in a county in 2012 or not.

Analysis

We conduct 4 analyses. First, we compute the average change in national market share by carrier category. Second, we decompose that growth into organic growth and growth attributable to acquisitions. Third, to assess the change in local competition, we examine the distribution of markets by HHI category at the start of our study period (2012) vs. the end (2023). Finally, we examine the relationship between MA penetration and market concentration.

For the two local-level analyses, we calculate the MA penetration and HHI for each county. To aggregate the county-level estimates, we weight each county by its total Medicare (Parts A & B) population, which includes all beneficiaries enrolled in MA, Traditional Medicare (TM), or other plan types.

Limitations

This study has several limitations. First, including SNPs in our main analysis potentially overstates competition because the overwhelming majority of SNP enrollment is restricted to dually eligible Medicare-Medicaid beneficiaries. Sensitivity analyses that exclude SNPs show that the non-SNP market is somewhat more concentrated, but our conclusions are not substantively different (see Appendix).¹² Second, the carrier groupings, particularly our definitions of national vs regional plans and ‘Medicaid-oriented’ require some subjective decision. Our criteria used a combination of the number of states a carrier operated in and its MA, Commercial and exchange market share. (see Appendix).¹² Third, the trends we report may change over time (and may be affected by MA policy). For example, Cigna has announced plans to sell its MA business to Health Care Service Corporation (HCSC)¹⁴, which may increase concentration (nationally and locally). Fourth, we weight counties by the total population of Medicare beneficiaries in each year (restricting analysis to counties with at least one MA enrollee) to describe market concentration encountered by the average beneficiary. Weighting by MA enrollment lowers 2012 HHI because market concentration was very high in counties with minimal MA presence. The basis for weighting became less salient over time and affected results minimally by 2023 (Appendix A1).¹² Finally, our measure of the indirect enrollment effect of acquisition relies on the assumption of constant market shares. However, we cannot be certain how enrollment trends in the acquired carrier would have evolved. For example, acquired carriers may have been motivated to sell by anticipated enrollment declines that the acquisition reverses.

Study Results

Trends in National Presence by Insurer Type

Nationally, MA market shares have become increasingly concentrated in the 5 national carriers, whose combined market share has increased from 46% in 2012 to 66% in 2023. In local markets, the average HHI (weighted by county Medicare population) has decreased from 4,300 to 3,000 (Exhibit 1). Of the 5 national carriers, United and Humana were the clear leaders throughout the study period, but CVS, Elevance, and Cigna have also grown rapidly since 2012 (Appendix Exhibit A2).¹² While Non-Blue Regional Carriers collectively had the second largest market share among the categories of insurers in 2012 at 25%, this dropped precipitously to just 6% in 2023. The market shares of the Regional Blues plans and MA plans that were integrated with health systems remained stable at around 10% and 13%, respectively. Importantly, this stability in market share was occurring as the overall MA market grew, so these plan types experienced proportional growth. These trends are similar when excluding SNPs, with the largest market share declines for United and Medicaid-Oriented carriers (Appendix Exhibit A3-S1).¹²

Exhibit 1.

MA Market share growth by MA carrier type; 2012–2023

Source: Authors’ analysis of data from the Centers for Medicare and Medicaid Services (CMS) Medicare Advantage enrollment by contract-plan-state-county files, December 2012 – December 2023.

Notes: Market share is constructed from enrollment in certain MA plans: non-SNP, non-EGHP, CCP plans (e.g., HMOs, Local PPOs, and Regional PPOs). Carrier groupings are defined as follows: National Carriers (Cigna, CVS, Elevance, Humana, and United), Regional Blues, Health System Integrated (e.g., Kaiser and UPMC), Medicaid-Oriented (e.g., Centene and Molina), Startups (e.g., Alignment and Clover), SNP-only (e.g., Mercy Care and Orange County Health Authority), and Non-Blue Regional Carriers (e.g., EmblemHealth and SCAN).

Although startups have received a lot of attention and have grown dramatically, from enrollment of 12,000 to over 400,000 over the period, they remained a small player on the national scale. They had a collective market share of only 2% in 2023. That said, they had the largest market share in 5 counties, but those markets were typically small, representing 0.5% of the total Medicare population (Appendix Exhibit A4).¹² For example, Bright Health had a market share of 62% in Imperial, CA, which had a total of 12,000 MA enrollees in the market.

Enrollment Growth and Acquisitions

Over our study period, we identify 77 ownership changes (Appendix Exhibit A5).¹² These occurred at a relatively constant rate over time and ranged in size (enrollment of the acquired insurer prior to acquisition) from 3,867 enrollees in 1 county to 540,401 in 642 counties. Exhibit 2 describes the enrollment growth (both direct and indirect) from 2012–2023 attributable to acquisitions, entrance into new markets, and growth in existing markets for each carrier group. There is substantial variation across carriers; Cigna, Elevance, and Medicaid-Oriented carriers have the majority of their enrollment growth from acquisitions. CVS and Startups primarily gained from entering new markets without acquisitions, while growth in Humana and Regional Blues came from existing markets (Exhibit 2).

Exhibit 2.

Enrollment growth attributable to acquisitions, existing markets, and new markets; 2012–2023

Source: Authors’ analysis of data from the Centers for Medicare and Medicaid Services (CMS) Medicare Advantage enrollment by contract-plan-state-county files, December 2012 – December 2023.

Notes: MA enrollment only includes specific plans: non-SNP, non-EGHP, CCP plans (e.g., HMOs, Local PPOs, and Regional PPOs). To calculate enrollment changes attributable to acquisitions, we sum both direct and indirect enrollment changes. The direct enrollment changes attributable to acquisition consider only the enrollment in the acquired plan at the last observation before the change of ownership as attributable to the acquisition. This is the most concrete measure of the impact of acquisition on enrollment. Indirect enrollment changes attributable to an acquisition arise because the enrollment in the acquired carriers may have grown after the time of acquisition (in the absence of acquisition). Our measure of indirect enrollment effects assumes that the market share of the acquired and acquiring carriers in each market would have stayed constant in the absence of acquisition (i.e., both carriers would have grown at the same rate). For example, if the acquiring carrier had no presence in a market before the acquisition, we attribute all of its enrollment growth in that market to the acquisition. If the acquired carrier had 40% of the enrollment of the combined enrollment pre-acquisition, the direct effect of the acquisition is the enrollment acquired at baseline. The indirect enrollment effect includes 40% of the subsequent enrollment growth of the combined entity in the market. Enrollment growth from existing or new markets is defined by whether the carrier offered a plan in that county in 2012.

About two-thirds of the total acquisition-attributable enrollment growth was due to direct, as opposed to indirect, enrollment growth (Appendix Exhibit A6).¹²

Service Area Expansion

Over our study period, there was a dramatic expansion in the number of states and counties served by most carrier types (Appendix Exhibit A4).¹² Specifically, in 2012, Humana was the only carrier in over 1,000 counties. The other National carriers (United, CVS, Elevance, and Cigna) and Medicaid-oriented carriers dramatically expanded the number of counties served, although they varied widely in the share of this expansion that was due to acquisitions, ranging from 7% for Elevance to 36% for Medicaid-oriented carriers (Appendix Exhibit A4).¹² However, acquisitions only accounted for a small share (15%) of total market entry events nationally (Appendix Exhibit A7).¹²

On average, when weighted by Medicare beneficiaries, the total number of carriers per county increased from 6.4 to 9.9 from 2012–2023 (Appendix Exhibit A8).¹² Excluding SNPs, the average number of carriers per county in 2023 drops to 8.3. Additionally, many carriers have very small MA market shares. When we exclude those with market shares of <5%, the average number of carriers per county in 2023 further drops to 4.4.

Local Market Concentration and MA Penetration

Over our study period, the share of Medicare beneficiaries living in extremely concentrated markets (HHI > 5,000) fell from 29% to 6% as carriers expanded into new markets (Exhibit 3). Specifically, 19% of total Medicare beneficiaries lived in a county that changed from extremely concentrated to highly concentrated (Appendix Exhibit A9).¹² Along with the decline in the number of extremely competitive markets, markets also shifted from highly to moderately concentrated. Together, these shifts resulted in a minimal decrease in the share of beneficiaries living in highly concentrated markets (56 to 54%) and an 18-percentage point increase in the share of beneficiaries living in moderately concentrated markets (1,800 < HHI < 2,500). Despite the reductions in local market HHI, few markets (even those with high Medicare Advantage penetration) have reached HHIs in the range the DOJ and FTC consider to be low or moderately concentrated (HHI <1,800), with just 8% of Medicare beneficiaries living in such markets in 2012 and 11% in 2023. When excluding SNPs, markets appeared more concentrated, with the share of beneficiaries in markets with HHI<1800 remaining at 5% in 2012 and 2023 (Exhibit A10-S3).¹²

Exhibit 3.

Changes in the distribution of market concentration by HHI; 2012 & 2023

Source: Authors’ analysis of data from the Centers for Medicare and Medicaid Services (CMS) Medicare Advantage enrollment by contract-plan-state-county files, December 2012 and December 2023.

Notes: MA enrollment only includes specific plans: non-SNP, non-EGHP, CCP plans (e.g., HMOs, Local PPOs, and Regional PPOs). HHI is calculated using carrier-level market shares for each county, and each county is weighted by its Medicare A & B population. HHI thresholds are based on current and previous FTC & DOJ horizontal merger guideline thresholds.

While growth in MA Penetration has been associated with declining HHI when MA Penetration is low (<20%), this relationship plateaus at an average HHI of around 3,000 for markets where MA Penetration exceeds 20%, which covered about 95% of beneficiaries in 2023. (Exhibit 4). The relationship between MA Penetration and HHI was similar in 2012; as MA penetration increased over time, more counties moved along the curve to the flat portion (Appendix Exhibit A11).¹² Thus, as the MA program grew, the increases in local market competition were concentrated among counties with limited prior MA presence. This suggests that we should not expect further growth in MA penetration to be associated with increased competition in local markets now that MA penetration exceeds 20% in nearly all counties. This pattern is very similar when excluding SNPs (Appendix Exhibit A12-S4).¹²

Exhibit 4.

Association between MA Penetration and HHI (2023)

Source: Authors’ analysis of data from the Centers for Medicare and Medicaid Services (CMS) Medicare Advantage enrollment by contract-plan-state-county files December 2023.

Notes: MA enrollment only includes specific plans: non-SNP, non-EGHP, CCP plans (e.g., HMOs, Local PPOs, and Regional PPOs). HHI is calculated using carrier-level market shares for each county, and each county is weighted by its Medicare A & B population. The share of Medicare population is defined as the sum of the county-level Medicare Parts A & B enrolled beneficiaries for each 5% bin of MA Penetration (e.g., 20% point is counties with MA penetration between 17.5% and 22.5%). Counties with MA penetration greater than or equal to 60% are grouped in the final point at 60%.

Discussion

We present novel findings on how competition has evolved in Medicare Advantage since 2012 from national and local perspectives. Nationally, the large national carriers (United, Humana, CVS, Elevance, and Cigna) have increased their market share from less than 50% to almost 66% from 2012–2023. This is closely related to the decline of regional carriers, which were the primary targets of acquisitions by some national carriers.

This national consolidation of market share would not be as concerning if competition continued to increase at the local level. However, our analyses suggest that this trend is unlikely to continue because it has been largely due to shifts in local market concentration from the highest categories of concentration to categories that, though less concentrated, would not be defined as competitive. Moreover, this shift has largely occurred in counties with initially limited MA presence, and few counties with low MA penetration remain. Thus, gains in local competition may have run their course. This is reflected in local measures of competition clearly showing stagnating trends in concentration as MA grows.

Of course, the future is unknown. Although startups have not had a significant effect on many markets to date, they may have growing success in the future. The extent to which they do likely depends on how future MA policy, particularly regarding how payment generosity evolves. If payment becomes less generous the likelihood of startups being more impactful declines. In contrast, the pending acquisition of Cigna by Health Care Service Corporation (HCSC) suggests that some markets will consolidate more and, more broadly, that policymakers should not assume all carriers in the MA market will continue to participate in MA.(14)

The degree to which policymakers should be concerned with the growing share of national carriers and high concentration in many local markets depends on two factors. First, if the growing share of national carriers reflects better value (e.g., better benefits or lower premiums), policymakers may be comfortable with a decline in national competitiveness. However, it is possible that other factors, such as proficiency in coding or the competitive edge associated with ownership of related entities (providers or pharmacy benefit managers) create an imbalanced playing field that leads to concentration. More evidence on the variation in value across plans that are offered by national or regional carriers is thus needed.

Second, how much competition is enough? MA plans are paid more than would be spent in TM,¹⁵ and competition drives how much of that additional payment is passed through to beneficiaries in the form of more generous coverage at lower premiums. Ten competitors (carriers in our case) would be considered sufficient for competition in most industries. However, many of these carriers are small and may not be directly competing with other carriers or may be competing only for subpopulations. Small market shares in a given county can occur, for example, for start-ups or when a carrier’s provider network is concentrated in neighboring counties. In addition, because of product differentiation (e.g., health system or start-up plans may offer niche products with very limited local networks) and segmentation of the market for dually eligible enrollees (D-SNPs), the effective number of competitors may be less than a simple count of carriers would imply. Though we cannot determine how many carriers would be needed to create a sufficiently competitive market, the high HHIs, which have not risen much as new carriers entered, and incomplete pass-through suggest that competition could be improved.^{2–4,16–17}

Importantly, passthrough can be enhanced by increasing competitiveness for any given number of competitors. Potential options include policies that limit the number of plan offerings per carrier, standardize the benefits plans must offer, address inertia in beneficiary decision-making by improving the information available to them to facilitate shopping, or enhance coverage in TM and reduce plan payments in MA to exert greater pressure from a public option for plans to share more surplus with enrollees. Moreover, with a growing share of dually eligible beneficiaries enrolling in MA, it is important to understand the role of SNPs in driving MA competition.

While the effects of competition are important in the current MA program, competition becomes even more salient if MA reforms make the benchmarks a function of bids (e.g., competitive bidding). In that case, even if MA plans offer better benefits, imperfect competition can lead to substantially higher Medicare spending unless a cap on benchmarks is imposed.

Given the growth in MA and the importance of competition to the MA program, tracking the trends in market consolidation is important. While consolidation at the local level has fallen, consolidation in most markets remains above a threshold that would trigger regulatory concern. If current patterns hold, this is unlikely to change as MA penetration grows and may in fact get worse if MA payments become less generous and additional acquisitions consolidate local markets. Thus, policymakers should be aware that MA program reforms that are built assuming MA markets will be competitive are unlikely to achieve program goals without ensuring the competitiveness of MA markets.