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Insurance mergers: Harmful to providers and their patients

September 3rd, 2015

by David Balto and James Kovacs

The multibillion-dollar health insurance mergers between Aetna and Humana and between Anthem and Cigna has been widely reported. While these pending mergers are financially lucrative for the companies and their stockholders, the most important and pressing question is if these mergers will benefit hospitals, other providers and consumers by improving the quality of healthcare and lowering costs. The answer is an unequivocal no.

Should hospitals care? Absolutely. The formation of a new Aetna and Anthem will create dominant insurance entities that can use their newly acquired power to dictate provider reimbursement and lower rates. Providers already know that size matters, and the larger the health insurer the more it can drive payments to unreasonable levels. Do consumers benefit? No. While insurers use monopsony power to drive down provider rates, any potential “savings” are not passed along to consumers. In fact, along with decreasing provider reimbursements, health insurance mergers actually lead to increases in consumer premiums, according to the National Bureau of Economic Research. Both providers and patients suffer.

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Premiums and provider reimbursement are not the sole issues. As the Department of Justice (DOJ) has observed, insurance mergers can also lead to a reduction in quantity and quality of care. Moreover, by further decreasing the number of national insurers, the mergers will lessen insurer innovation, creating further disincentives to insurers to compete on the basis of creating new payment models and plans that favor improving delivery and quality of care, as the New York Times has noted.

It is not as though these markets were already robustly competitive. Studies have demonstrated most insurance markets are highly concentrated, according to the American Medical Association. In fact, a merger between Anthem and Cigna will result in anticompetitive levels of concentration in more than 800 geographic markets affecting 45 million beneficiaries, Law360 has reported.

Additionally, a recent report by the Commonwealth Fund found that 97 percent of Medicare Advantage markets are highly concentrated. The merger between dominant Medicare Advantage insurers Aetna and Humana will only exacerbate issues within these markets, further driving up costs for seniors.

The claims of the insurance companies that there are ways to solve the competitive problems are as thin as the paper they are written on. The parties will suggest piecemeal divestitures will solve the problem. They are wrong. Divestitures within insurance markets do not alleviate antitrust concerns. In fact, in spite of divestitures, past insurance mergers have led to price increases, according to a study published in the Health Management, Policy and Innovation journal. The only proven way to protect competition is to block anticompetitive mergers.

Lastly, the insurance companies cannot rely on procompetitive benefits, also known as efficiencies, to overcome the anticompetitive harms associated with the transactions. The parties have already begun to tout the benefits of the merger, with Aetna arguing its deal will save billions in operating efficiencies and synergies. But efficiencies that solely benefit the merging parties will not be considered by the enforcement agencies. Instead, merger efficiencies, along with being merger-specific and cognizable, must benefit consumers post-transaction by lowering price, improving quality or introducing new products, according to the Federal Trade Commission. None of which can be argued will occur post-merger in these two matters.

The national goal of healthcare reform is to improve the quality of access to healthcare while simultaneously controlling costs. The mergers of Aetna and Humana and Anthem and Cigna would derail the path to progressive reform. If these mergers are allowed to move forward, provider reimbursement will decrease, leading to less effective services, and consumers will face higher premiums and fewer choices. The DOJ is to be applauded for taking an active role and, as the Wall Street Journal has reported, investigating the two mergers collectively with an appreciation for the American healthcare system. However, allowing the parties to consummate these mergers, even with a substantial divestiture of assets, would be a mistake. The DOJ should block these deals.

David Balto is an antitrust attorney with more than 25 years' experience in private practice and the government including serving as the policy director for the Federal Trade Commission. David regularly represents healthcare providers in investigations before the FTC and Department of Justice. James Kovacs is an associate attorney at the Law Offices of David Balto.

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