Congress should do something to increase the number of health insurers competing for small employers’ business.

Witnesses delivered that message in Washington at a House Small Business Committee hearing on the effects of health insurer consolidation on small businesses.

UnitedHealth Group Inc., Minnetonka, Minn., drew attention to the issue in March, by agreeing to buy Sierra Health Services Inc., Las Vegas, for about $2.6 billion. The deal could give UnitedHealth an 80% share of the Nevada health maintenance organization market and a 94% share of the Las Vegas HMO market, analysts say.

But witnesses at the House Small Business Committee hearing said health insurer consolidation already affects small businesses in markets throughout the country.

Robert Hughes, president of the National Association for the Self-Employed, Dallas, cited a U.S. Government Accountability Office study that found that the median market share of the largest carrier in the small group market in each state had increased to 43%, up from 33% in 2002.

A 2006 study, by the American Medical Association, Chicago, found that 95% of the health insurance markets it reviewed had a single insurer with a market share of 30% or greater, and 56% had a single insurer with a market share of 50% or greater, Hughes testified.

Greg Scandlen, president of Consumers for Health Care Choices, Hagerstown, Md., who once worked in state government relations at the Blue Cross and Blue Shield Association, Chicago, said some state insurance regulators believed in the early 1980s that the small group market was suffering from an excess of competition.

“They thought it would be better if there were only three or four competing companies in each state,” Scandlen said, according to a written version of his remarks. “They have been wildly successful. In my state of Maryland there are now just two companies controlling 90% of the small group market.”

“This market concentration gives these health plans excessive power in determining the conditions of coverage, payment and practice,” said Dr. James King, president of the American Academy of Family Physicians, Leawood, Kan.

Dr. William G. Plested III, the immediate past president of the American Medical Association, Chicago, recommended that the House Small Business Committee should ask the U.S. Justice Department to block the UnitedHealth-Sierra deal on antitrust grounds.

“We believe that the federal government must take steps to correct the current imbalance in the market and address the deceptive, anticompetitive conduct of large, dominant health insurers,” Plested said. “The boundaries of acceptable consolidation in the health insurance market must be reexamined.”

Other witnesses said state health insurance regulation has done more to drive up small group health insurance costs than consolidation has.

“State mandates on coverage in all markets increase the cost of basic health coverage between from a little less than 20% to more than 50% depending on the state,” Hughes said.

Scandlen recommended that Congress respond to small group health insurance increases by giving health insurers the option of choosing federal regulation, rather than state regulation.

Health insurers licensed in one state should be allowed to sell health coverage to residents of other states without complying with the other states’ mandates, Scandlen said.

“Small business owners would be able to purchase coverage according to, not only the reputation and integrity of the insurance company, but also the set of regulations that apply to it,” Scandlen said.

Links to the written versions of the witnesses’ remarks are available