A new report from the Henry J. Kaiser Family Foundation finds that the individual and small group health insurance market in Florida is “highly concentrated,” which could present problems as the state starts to create a health insurance exchange program or marketplace.

According to a 2010 report (.pdf), individuals who shopped for health care insurance that year faced a market in which four insurers had more than 5 percent of the state’s market share. The market share of the state’s largest insurer at the time (based on enrollment) was 49 percent.

For small groups, the situation was not much better. In 2010, four insurers also had more than 5 percent of the state’s market share 2010. The state’s largest insurer had a 40 percent market share.

The report also used a common measure of competition called the Herfindahl–Hirschman Index, or HHI, to evaluate the competitiveness of state markets:

The HHI measures how evenly market share is spread across a large number of insurers. HHI values range from 0 to 10,000, with a value closer to zero indicating a more competitive market and values closer to 10,000 indicating a less competitive market. As a rule of thumb, an HHI index below 1,000 indicates a highly competitive market, and a value between 1,000 and 1,500 indicates an unconcentrated market. Values between 1,500 and 2,500 suggest moderate concentration, and markets with results above 2,500 are generally considered highly concentrated.

For both individuals and small groups, Florida’s HHI value was above 2,500 — meaning both markets were “highly concentrated.”

The report explains that states currently making “important policy decisions as they implement new insurance market rules and deciding whether and how to operate exchanges … may be influenced by how competitive a state’s insurance market is perceived to be”:

If a large portion of the market is controlled by one insurer, that carrier may be able to exert significant influence over the premiums charged in the market and the rates paid to health care providers. Moreover, a state exchange may have limited ability to selectively contract if a single insurer cannot practically be excluded from the exchange without substantial disruption.

Even though Florida’s market for individuals and small groups are both not very competitive, Florida’s proposed exchange program will only be available to small employers, not to individuals.

If the federal health care reform law is upheld in court, Florida’s proposed health insurance exchange program could be the basis on which the federal health care reform law program is implemented in the state.

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