Valhalla Business Advisors’ clients span the United States and, to an increasing extent, the globe. Over the past week, we worked on implementation schedules for client operations in Pennsylvania, Texas, New York, and Florida, as well as Israel, UK, and potentially Saudi Arabia. We have found surprising value for smaller (50-100 employee) organizations using ICHRA solutions, which leverage the individual markets in certain states.

Important to every client engagement is building a deep understanding of client goals and assessing regional contexts; “Regional contexts” means the general costs of health insurance, insurers represented, provider availability, and regional trends for cost sharing (e.g. deductibles, networks, copays, etc.)

Valhalla Business Advisors helps advise our clients on regional contexts and trends which supports informed decision making. Included in solutions designed to support client strategies are domestic benchmarking solutions, data analytics, and global employment outsourcing.

The purpose of this blogpost is to share Valhalla’s perspective on the role of market power on consumer choice and costs.

Standard oil, monopoly, and sherman

Standard Oil was a company founded by John D. Rockefeller in 1870, which eventually became one of the largest and most powerful corporations in the United States. It was primarily involved in the production, refining, and distribution of petroleum and its byproducts.

At its peak, Standard Oil held an estimated 90% market share of the oil refining industry in the United States, effectively creating a monopoly in the oil market. The company achieved this dominant market share through various horizontal and vertical consolidation strategies.

Standard Oil engaged in practices such as predatory pricing, where it would sell oil products at prices below cost to drive competitors out of business. It also engaged in aggressive acquisition and merger activities, buying up competitors and consolidating its market power. Standard Oil controlled various stages of the supply chain, including oil wells, refineries, transportation, and distribution networks, effectively monopolizing the entire industry.

The consolidated market power of Standard Oil was widely seen as detrimental to society. It resulted in anti-competitive practices, such as stifling competition, limiting consumer choice, and driving up prices for consumers. It also gave Standard Oil excessive control over the oil industry, enabling it to manipulate prices and exert undue influence on the economy and political system.

As a result, Standard Oil was eventually broken up under the Sherman Antitrust Act of 1890, which aimed to curb monopolistic practices and promote fair competition. In 1911, the U.S. Supreme Court ordered the dissolution of Standard Oil into 43 separate companies, which included entities such as Exxon, Mobil, Chevron, and ConocoPhillips, among others. This breakup aimed to promote competition, reduce market concentration, and prevent the abuse of monopoly power in the oil industry.

DOJ regulations

The US Department of Justice (DOJ) commonly uses a measure called the Herfindahl-Hirschman Index (HHI) to assess market concentration and determine whether abuse of monopoly power may arise. The HHI is a widely used measure in antitrust analysis to evaluate market concentration and assess the level of competition in a particular market.

The HHI is calculated by summing the squared market shares of all firms in a market. It ranges from 0 to 10,000, with higher values indicating higher concentration and lower levels of competition. A market with a single firm having 100% market share would have the maximum HHI value of 10,000, indicating a complete monopoly, while a market with many small firms with equal market shares would have a lower HHI value, indicating more competition.

Health insurance, Medicare Advantage, and Pharmacy Benefit Management services

Monopolies result in reduced competition, higher prices, limited consumer choice, inefficiencies in resource allocation, reduced innovation, and distortion of economic and political power, all of which can have negative consequences for society as a whole.

The continued consolidation of health insurers and health care providers, coupled with trends in vertical integration, create market dynamics which are problematic for employee benefit decision makers and health care consumers; When matched with increasing broker consolidation, conflicts of interest arise frequently, as reported in this ProPublica article. How dissimilar are these trends and outcomes from those recounted about Standard Oil?

Collectively, these details support the thesis for our Valhalla Independent Advisor Agreement strategy!

We were curious to compare the HHI values for health insurance in some very familiar markets; Our analysis is included below:

We were curious, reflecting on the representative insurers above, whether there was substantial overlap with the growing Medicare Advantage market; Our analysis is included below:

Then, contemplating a recent blogpost on prescription benefits, we thought it would be worthwhile to include the following analysis of PBM market shares. Note that the largest of these providers are “vertical plays” across insurers (i.e. CVS Health and Aetna are affiliates of Caremark, Cigna is an affiliate of ESI, UnitedHealth is an affiliate of Optum.) Not included in the analysis below is the relationship between Prime and various Blues licensees.

Valhalla loves the work that is required to evaluate the options available to organizations based on goals, constraints, and available timeframes. We also believe the trends identified above, coupled with continued broker consolidation, further reinforce the value of our Valhalla Independent Advisor Agreement strategy! If you would like to discuss any of these ideas further, please reach out to either Stuart or Jens to discuss!

Post Script

P.S. Stuart and I discussed starting a recurring video series; As we thought about our brand, vision, and values, we landed on the notion of “Battles Worth Fighting,” with a feature of some industry issue, as well as a highlighted person, organization, or movement which is creating impact.

It turns out the implementation of this idea is much more difficult than either of us thought! We will invest some more energy into this idea, but given our strong capabilities for clients, and lack of audio/video production training, it may be an idea destined for the “parking lot” of future investments!

Our first effort is here for your review. If the video provokes any ideas for follow-up, please reach out. We would love to connect with you!