Consumer
advocates, policy experts and former regulators say that what may be
good for the insurers may not be good for consumers, especially in the
wake of a similar frenzy of deal-making among hospitals and doctors’
groups.
“The
consolidation in both of these industries has been shown to have an
adverse impact on consumers,” said Leemore S. Dafny, a former official
at the Federal Trade Commission who is now a professor at Northwestern
University’s Kellogg School of Management.
Anthem,
which operates for-profit Blue Cross plans in 14 states, merging with
Cigna, another large for-profit carrier, along with the planned deal for
Aetna to join Humana, a smaller rival known for its private Medicare plans, would create two behemoths.
Along with the already enormous UnitedHealth Group, these companies would control nearly half of the American commercial health insurance
market, according to Decision Resources Group. Each would have tens of
millions of people enrolled in their plans, offered largely through
employers or government programs like Medicare.
“I
don’t think there’s a guarantee that bigger is better for the
consumer,” said Sarah Lueck, a senior policy analyst at the Center on
Budget and Policy Priorities who is also a consumer representative for
the National Association of Insurance Commissioners, a group of state
regulators who may individually weigh in on the potential mergers.
William J. Baer, who oversees the antitrust division of the Justice Department, which is reviewing the insurance mergers, told Bloomberg TV
last month that the agency would look at each deal on its own merits
but also take into account “a trend towards consolidation in the health
care insurance market.” The agency declined to comment further.
The
insurers insist that combining companies will lead to lower prices and
better care for their customers. They point to billions of dollars in
efficiencies.
The
combination of Aetna with Humana would “promote greater operational
efficiencies that enable us to lower costs,” Mark T. Bertolini, the
chief executive of Aetna, told analysts in July after the deal was
announced. The merger, he said, would “create value for our customers
and provider partners.”
The
companies also say the savings generated by these deals would
ultimately benefit buyers. “The cost improvements go back to the
employer, the governmental entity and/or the individual,” David Cordani,
chief executive of Cigna, told CNBC last Thursday, emphasizing that he was confident the merger would receive the necessary regulatory approvals.
The sweeping changes in the market caused by the federal health care law,
including greater government oversight and intense pressure to keep
prices low, would also prevent insurers from raising prices too much,
the insurers said. “If plans are going to be competitive,” said Clare
Krusing, a spokeswoman for America’s Health Insurance Plans, a trade
group, “they have to offer the most affordable premiums.”
The insurers also point to new rules under the health care law
that require them to spend a fixed amount of the premiums they collect
on care, essentially capping their profits even if they are charging
much higher prices.
Still,
businesses and brokers question the necessity of these mergers. “Are
these companies not big enough that they needed to be bigger?” asked Don
Mucci, a broker at Garrett-Stotz Company in Louisville, Ky., who helps
small businesses find coverage. “They’re all huge.”
When area hospitals merged, they also promised greater efficiencies, he noted, but “I don’t see medical costs going down.”
Other
brokers are also watching the developments closely. “In markets where
there is less choice, there tends to be higher costs,” said Lisa Hawker,
the president of employee benefits for Hylant, an insurance brokerage
based in Toledo, Ohio. While the consolidation of insurers like Anthem
and Cigna might improve their ability to focus on consumers, for
example, businesses could also have a harder time negotiating, Ms.
Hawker says.
After
the mergers, regulators will be looking for changes in the competitive
landscape, which will vary by location and the type of insurance —
whether it serves large employers or offers private Medicare Advantage
plans. In Kansas, for example, Aetna and Humana have 90 percent of the
market for Medicare Advantage plans, according to data from the Kaiser
Family Foundation.
For
large employers that rely on national carriers to provide coverage to
workers scattered across states, the pool of the five major entities
would shrink to just three. To give their employees choice, for example,
FedEx and Robert Half each offered both Anthem and Cigna to their
employees.
Combined,
Anthem and Cigna service about 21 percent of the commercial market,
said Paula Wade, a health care analyst for Decision Resources Group, but
in some areas, their market share is much more. In Richmond, Va., the
two companies have nearly two-thirds of the market.
Hospitals
and doctors could also face a serious challenge. “It really does give
them a huge hammer to hit with in negotiations,” said Ms. Wade, who
predicted the mergers would set off a greater frenzy among hospitals to
combine .
While
it is possible that a giant insurer battling a giant hospital system
could lead to lower prices — because the insurer is able to extract
lower prices from the large health system — the benefits may not
necessarily flow to consumers, says Martin Gaynor, a health economist at
Carnegie Mellon University. In a market with two behemoths, “consumers
are left on the outside looking in,” he said.
And
regulators may not be convinced by the argument that the insurers and
the hospitals need to be big to keep each other in check, said David A.
Balto, a Washington antitrust lawyer who worked at both the F.T.C. and
Justice Department. “It’s a Faustian bargain,” he said.
The
real question for regulators is whether the markets remain competitive.
Employers and individuals may be able to rely on strong local players
like nonprofit Blue Cross plans.
Large
medical centers are also increasingly entering the insurance market.
But start-ups have a hard time entering the market, and the five current
players — all well-capitalized companies with a thirst for more
customers — would most likely be the new entrants in markets where they
are not already strong.
Some
policy experts say they worry that insurers will no longer be under as
much pressure to work with hospitals and doctors on new ways of
delivering care. “They don’t have to compete and be innovative,” said
Dr. Robert Berenson, a health policy expert at the Urban Institute, a
research group based in Washington.
The
insurers insist that merging will accomplish more innovation as they
borrow new approaches from one another. In the case of Anthem and Cigna,
“both organizations are focused on partnering with physicians and
individuals to improve health quality, improve health costs,” Mr.
Cordani said in the CNBC interview.
Other
insurers may be stepping up as well. UnitedHealth remains a potentially
robust competitor in any market where it is not already strong, and
Centene Corporation, best known for its Medicaid plans, says it might move more into Medicare, buying some of the plans that could be divested if some of its competitors merge.
The
concerns about consolidation may be overblown. When two of the largest
companies offering prescription drug benefits, Express Scripts and Medco
Health Solutions, merged in 2012, many experts were worried that the
market would be significantly less competitive, recalled Adam J. Fein,
president of Pembroke Consulting, a company that follows the
pharmaceutical industry.
“Many
of the fears that were advertised did not come to pass,” he said,
noting that there were discussions of how independent pharmacies, for
example, would be driven out of business, but their numbers have not
changed. Other competitors, like UnitedHealth’s prescription drug
benefit management business, have gotten stronger; UnitedHealth recently
bought another company, becoming even larger.
Still,
consumer advocates and others remain wary of the pending insurance
mergers. “I don’t think any of us is under the illusion that this is
great for consumers,” Ms. Lueck said.
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