The troubling reason health insurance costs are rising

According to the Government Accountability Office (GAO), the majority of Americans have private health insurance. In total, 165 million people get coverage through employers, while most of the rest buy private individual coverage, including 24.2 million who bought plans from marketplaces created by the Affordable Care Act during the 2025 marketplace open enrollment (Centers for Medicare & Medicaid Services).

Unfortunately, costs for insurance are increasing. As health insurance prices go up, this places an added burden on those buying policies. That can include employers who subsidize premiums, as well as those buying individual coverage or contributing to their group plan 

There are many potential reasons why costs are going up, but the GAO has pointed out one health insurance industry trend that's already making a big impact and that's likely to get worse in the future. Here's what it is. 

Market concentration is increasing health insurance costs nationwide

According to the GAO's data, market concentration may be driving up the cost of health insurance coverage.  

Market concentration refers to a reduction in the number of insurers offering coverage in a particular market. The GAO indicates that this has been occurring more frequently across the United States in recent years. 

As a result, a growing number of states now have "concentrated" markets, which is defined as a market where three or fewer insurance companies insure at least 80% of all enrolled policyholders. 

The GAO measured market concentration across three different private insurance markets: the individual market, the small group market, and the large group market, and found that concentration is a problem in all of them. Specifically:

• The number of states with concentrated individual markets grew after 2011 and reached a peak of 47 in 2019. However, from 2020 through 2022, GAO found that concentration in the individual market declined year-over-year.

• The small-employer group market increased in concentration from 2011 to 2022, although the rate of this increase has recently slowed. As of 2022, 47 states had concentrated small-employer group markets. 

• Finally, the large-employer group market is the largest private insurance market with an estimated 40 million people enrolled in employer group plans. While there were 40 states with concentrated large-employer group markets in 2011, this has grown to 43 in 2022.

Unfortunately, this means that in the vast majority of states, across all types of private insurance markets, just three or fewer insurers provide health insurance to almost everyone who is enrolled in coverage that does not come from the government.

This is a point of major concern, as the GAO states clearly that markets become less competitive as they become more concentrated. This, in turn, "may result in higher insurance premium costs, decreased access to affordable health insurance, and fewer options for consumers," according to the GAO. 

The good news is that 2019, the year that individual market concentration peaked, also brought the finalization of new regulations allowing employers to offer ICHRAs, which facilitate the purchase of individual coverage. By bringing new participants to the individual market, ICHRAs may have contributed to a decrease in the number of states with concentrated markets, as by 2022, only 35 states had three or fewer insurers covering 80% of the market. This impact is aligned with the federal government’s goals in creating ICHRAs, which were expressly designed to “promot[e] competition in healthcare markets by providing additional options for employers and employees.” (ICHRA Final Rule) 

Why are markets becoming more concentrated?

The GAO identified multiple reasons for the decrease in insurers' offerings across the United States, so the market concentration is likely driven by a few primary factors.

First and foremost, many existing insurers have either merged with other companies or have been acquired by other companies. Insurers are often eager to expand through M&A because doing so provides them with more market power. This, in turn, can make it easier to attract customers and negotiate more favorable reimbursement rates with healthcare providers. 

Concentration doesn't just happen when companies merge or are acquired, though. Sometimes, companies decide to leave a market, perhaps because they are no longer profitable in that area or simply shifting focus. If an insurer leaves and isn't replaced, then consumers have one fewer company to choose from. 

Finally, when a market has become concentrated, it becomes even more difficult for other insurers to break into the business and begin assembling a network and attracting new policyholders. This perpetuates the issue and makes it harder for a market to become less concentrated 

What can individuals or businesses do if a health insurance market is concentrated?

Unfortunately, health insurance buyers have little to do when they are faced with a concentrated market. 

Because they have so few choices on which insurance companies to buy coverage from, they may have no options but to pay more for a policy, or to settle for a policy that is not as comprehensive as they would have preferred.

However, there are some things that insurance buyers can do. They can: 

• Compare plans across all options: Individual insurance buyers should try to compare plans across whatever different insurers are offering coverage in the marketplace. Employers can also compare options before determining what insurer to partner with to provide group coverage. 

• Negotiate rates: Larger companies or groups of smaller companies that come together may have more leverage and be able to negotiate rates with existing insurers. This can mitigate the higher premiums that typically result when there is limited competition within a particular marketplace. 

• Advocate for policy change. Companies and individuals affected by market concentration can attempt to lobby local makers to make policy changes that will increase competition in the marketplace. This is a long-term strategy to achieve change, though, and not one that immediately ensures affordable health insurance prices for those who need coverage. 

Employers may also wish to pursue alternatives to the traditional method of providing employees with healthcare benefits. Instead of selecting a one-size-fits-all group plan from a very small pool of insurers, companies can consider offering an Individual Coverage Health Reimbursement Arrangement, or ICHRA. 

When companies open an ICHRA, the business has the flexibility to decide how much money it should provide to each employee to help cover health care. The company will then make these funds available for individuals to buy qualifying healthcare coverage on the open market. This can increase the number of people participating in the individual market, prompting more insurers to enter into marketplaces, reducing concentration and potentially lowering the cost of coverage. 

Employees can explore all qualifying plans to find one that fits their unique needs, so they can often find a better fit than if they had been restricted to a small number of company-sponsored group health insurance plans. This employee autonomy in finding health insurance is essential in concentrated markets where there may be few great options, and policyholders will need to dig into the details to find the best match. 

Employers can also cap their costs by determining how much to provide. This is a major benefit, as the market concentration is likely to continue, resulting in premium price increases. Additionally,  businesses with ICHRAs do not have to expend resources to select a group plan to offer their workers and manage enrollment. The lower administrative burden associated with ICHRAs helps companies further reduce the cost of their health benefits program. 

If you are ready to take the next step and give your workers the chance to research benefit providers to find the right one, contact Thatch today to see how we can simplify the process of offering an ICHRA.