Chapter 14Chapter 14: The Structure of the Health Sector

14.114.1 Less than Half of US Health Workers Are Employed by Large Firms*

More than half of U.S. health sector workers are employed by firms that have fewer than 500 workers. The share of employment accounted for by large firms varies significantly across health industry subsectors.

More than 70 percent of health sector firms employ fewer than 10 employees (figure 14.1a). This is almost identical to the number for all U.S. private businesses. However, only approximately 10 percent of all health sector workers are employed by such firms, somewhat lower than for private business overall. In fact, relative to all private businesses, health sector workers are somewhat "underrepresented" in all firm-size categories up to 500 workers. In contrast, almost 40 percent of health care employees work in organizations that have 500 or more employees—almost double the national average. In both health care and private industry, such firms account for much less than 1 percent of all firms. This is almost invisible in figure 14.1a.

Compared with all private-sector workers, a much higher share of health services employees work for large firms.

At one further level of detail, hospitals, the insurance industry, and pharmaceutical industry represent subsectors in which more than half of workers work in the largest firms. In hospitals, fewer than one in six workers works in facilities that have fewer than 500 employees (figure 14.1b). Not surprisingly, there are few hospitals with fewer than 100 workers. In the insurance industry—specific figures for health insurance are not available—more than half work in the largest firms, but another fourth work in medium-size firms of 100-499 employees. On the goods-producing side of health care, more than half of pharmaceutical manufacturing employees but fewer than 30 percent of medical equipment manufacturing workers work in the largest firms (figure 14.1c).

More than half of hospital and health insurance employees work for firms that have 500 or more employees.

In the goods-producing area of the health sector, most employees work in medium- or large-size firms.

Note that there is no consensus about the dividing line between large- and medium-size firms. Some draw the line at 100 or 200 workers, but under virtually all definitions, a firm that has 500 or more workers is a large employer. Using the most expansive definition—a cut-off at 100 workers—99 percent of hospital workers, nine in 10 pharmaceutical industry workers, and approximately 75 percent of health insurance workers would be counted as employed by large firms. Over the past 30 years, the percentage of workers accounted for by health services has risen in all firm sizes; such growth has been fastest among the largest organizations.

References

  1. Author's calculations.

  2. Department of Commerce. Bureau of the Census.

14.214.2 Concentration in Health Insurance Industry*

Seemingly high levels of concentration in the health insurance industry might not accurately depict its competitiveness. Concentration is increasing for both hospitals and health insurers.

By conventional measures, the health insurance industry is highly concentrated. Some experts worry that lack of competition might result in higher premiums for health coverage than would otherwise prevail in a more competitive market. Economists measure concentration using what is called a Herfindahl-Hirschman Index (HHI). The calculation involves squaring the market shares of each competitor in a market and adding the results. For a monopolist having a market share of 100 percent, the HHI would be 10,000 (1002 = 10,000). Ten competitors each with equal market shares would produce an HHI of 1,000 (10 × 102). For purposes of antitrust regulation, the Federal Trade Commission (FTC) currently views areas with an HHI of 2,500 and more as highly concentrated. Transactions that increase the HHI by more than 100 points in highly concentrated markets presumptively raise antitrust concerns.

Using an HHI threshold of 1,800 that the FTC used prior to August 2010, in more than 90 percent of metropolitan statistical areas (MSAs), the market for insurers offering fully insured HMO or PPO plans is highly concentrated. A related measure shows that in more than 90 percent of MSAs, a single insurer for these products accounts for 30 percent of the market (figure 14.2a). In more than 60 percent of markets, the dominant insurer has more than half of all market shares, and in 25 percent of MSAs, this share exceeds 70 percent.

By conventional measures, many metropolitan areas appear to have high levels of insurance company concentration.

However, other studies have found much less concentration (figure 14.2b). Moreover, all the foregoing calculations focus on the fully insured market, ignoring self-funded health plans. Most large employers self-fund their health benefits: They absorb the risk and hire a health insurer or third-party administrator to pay claims. Approximately 60 percent of employer coverage is through such plans. Having market power does not mean it can be exercised. The modest profitability levels for health insurers described previously are not consistent with insurers having a widespread ability to demand supra-competitive prices. Although these measures do not paint a completely accurate picture of competitiveness in the health insurance industry, they do suggest that concentration might be increasing.

It appears that concentration is rising in both the hospital industry and HMO industry.

References

  1. American Medical Association. Competition in Health Insurance, 2010 Update. Chicago. 2010. Managed Market Survey © 2008, HealthLeaders-InterStudy.

  2. Shen YC, VY Wu and G Melnick. Trends in Hospital Cost and Revenue, 1994-2005: How Are They Related to HMO Penetration, Concentration, and For- Profit Ownership? Health Services Research 2010; 45(1):42-61.

14.314.3 US Health Sector Is Highly Regulated*

The health sector is more highly regulated than almost any other segment of the U.S. economy. However, the extent of regulation varies widely across states.

For decades, experts have regarded the health sector as one of the most highly regulated areas of the U.S. economy. State governments license many health providers. In more than 65 percent of states, hospitals, and/or nursing homes must secure a certificate of need—that is, the state's permission—before building or expanding a health facility or adding equipment to it. Health insurers cannot operate in a state without its approval and in some cases, review of its premium rates. FDA approval is required to bring drugs and medical devices to market. Finally, in many states, special rules or limits govern how the courts handle medical liability cases compared with how a bread-and-butter tort case would be adjudicated.

Even this incomplete description of regulation shows that states play an important role in regulation of health services. Consequently, differences across states in the scope and stringency of various health services regulations are quite large.

Figure 14.3 illustrates a flavor of this diversity. As with any index, this one cannot count every possible aspect of regulation. Moreover, even if it could, reasonable people might disagree on how to combine the various scores for potentially dozens of different areas of health services regulation. Should the score assigned to health facilities regulation receive the same weight as the score for regulation of health professionals? With this caveat, this particular ranking seems to show that states in the Rocky Mountain and Far West regions generally regulate health services less (or less stringently, depending on the particular area of regulation being examined) than do states in the Northeast or even Southeastern regions.

States that have the least amount of health services regulation in 2007 are predominantly located in the South and west of the Mississippi River.

If fully implemented, the new health reform law will do two things. First, it will significantly increase the amount of health services regulation. Second, it will shift more regulation to the federal level. States still will play a role in implementing the details of how, for example, state health exchanges will work. However, they will do so under a new set of "rules of the road" established by the federal government.

References

  1. Graham J. Index of Health Ownership. 3rd Edition. Pacific Research Institute. 2009. http://www.pacificresearch.org/docLib/20090720_IHOP_3_2009.pdf (accessed July 2010).

14.414.4 Unionization Rates in the Health Industry*

Unionization rates in the health industry are comparable to the economy-wide rate. The unionization rate within some health occupations is much higher.

The percentage of health industry workers who are union members appears to be the same as the national rate of unionization among all workers. At the industry level, the available data combine health services workers with other social assistance workers. Because the latter group constitutes only 15 percent of the combined total, it is unlikely that the numbers shown in figure 14.4 would change much if unionization in the health industry were measured more precisely. That said, at least part of the apparent steep decline in unionization for this group between 1992 and 2000 might be a statistical artifact. During that time, a major change occurred in how industries are categorized; the groups being compared in these two years are not identical in composition. It seems likely that there was a decline in unionization but perhaps not to the extent shown. The apparent rise in unionization from 2000 to 2007 cannot be explained in a similar fashion. It likely is genuine (though small).

Health industry unionization rates appear to be the same as those elsewhere, but among some health occupations, unionization is much greater.

Unionization data also are available at a more detailed level for health-related occupations. Shown are the numbers for the broad aggregates used by the BLS to describe health sector workers. Thus, among health care practitioner and technical occupations, the unionization rate is approximately double the rate for all health services. Moreover, this rate appears to be increasing over time. In contrast, unionization seems to be declining among health support occupations (again, with the caveat that the steep decline from 1992-2000 likely is exaggerated). "Personal care and service occupations" is another imprecise aggregate. It includes personal and home care aides, but these constitute only approximately one-sixth of the workers in this category. It also includes those who provide personal care services such as haircuts or manicures. Unionization within this group is similar to the economy-wide average and might possibly be increasing. Because identifiable health workers account for a much smaller group within this total, it is conceivable that these numbers would be different with numbers that are more detailed.

References

  1. Department of Commerce. Bureau of the Census.

  2. Department of Labor. Bureau of Labor Statistics.

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