Over the last year, the saga of proposed insurance megamergers have been playing out in the public sphere. Last month, the proposed merger between Aetna and Humana was blocked after the government alleged it would violate antitrust laws (Aetna may take up to Feb. 15 to decide to appeal the decision or not). The government levied a similar suit against Cigna and Anthem over their merger proposal. A decision in that case is expected soon.
Medicare Advantage markets played a large role in Aetna-Humana antitrust ruling
The Department of Justice argued a merger between Aetna and Humana would reduce competition in markets for individual insurance and Medicare Advantage (MA) plans. Evidence presented by the government suggested the merger would increase concentration in the Medicare Advantage market in 364 counties across 21 states and in the public marketplaces for individual insurance in 17 counties across three states.
The payers offered several defenses to claims the merger would reduce competition in MA markets, outlined by Abbe R. Gluck and Thomas Greaney in Health Affairs. Their arguments included competition in MA markets would not be significantly reduced because the MA plans sold in affected areas would still face competition from traditional Medicare, that divestiture from MA plans in affected areas would maintain competition, and the regulatory power of CMS over MA plans would limit anti-competitive effects of a merger.
The January ruling offered by Judge John Bates determined markets for traditional Medicare and MA plans were separate rather than one in the same, an important distinction when discussing competition. Internal documents from the two payers did not suggest they had treated traditional Medicare as a competitor, according to the ruling. Judge Bates also pointed to economic studies that showed beneficiaries infrequently switched from MA plans to traditional Medicare and vice versa.
Though Humana had agreed to divest certain MA assets to Molina Healthcare to grease the deal, Judge Bates determined that divestiture would not replace competitive intensity lost as a result of the merger. He did not believe there was enough evidence to suggest Molina’s background in the Medicaid managed care sector would translate to success in the MA market. Internal documents indicated even Molina leadership thought the move was risky did not help the defense.
CMS has a degree of control when it comes to pricing, margins, and benefits of MA plans and the payers argued that these would limit harmful effects of a merger. Judge Bates ruled these would not be enough to maintain competition because barriers to entry in the MA market pose a significant hurdle.
Different markets at play in antitrust case against Cigna and Anthem
Many have drawn parallels between the antitrust suits over the Aetna-Humana and Cigna-Anthem mergers. However, there are key differences. “Antitrust is fact-specific,” Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University Heinz College, told Healthcare Dive. “Each case is decided based on the specific facts of that case. If the facts for Anthem-Cigna look very different than they did for Anthem-Humana, then the decision could go the other way.”
One key difference between the two cases are the markets involved. While the case against the Aetna-Humana merger involved markets for MA plans and individual insurance, the case against the Cigna-Anthem merger involves markets for large group insurance, or the national account market.
In its case against the Cigna-Anthem merger, the government has defined employers with more than 5,000 employees and operations in more than one state as the customers in the national account market, Thomas Greaney wrote for Health Affairs. The government says only four payers serve this market: Cigna, UnitedHealthcare, Aetna, and the Blue Cross Blue Shield network, of which Anthem is the largest.
Cigna and Anthem have argued that members of the Blue Cross Blue Plan network compete with each other and should be identified separately. They have also argued many regional players play a role in the national account market since employers may turn to them to rather than one of the larger payers in some instances.
In response to Cigna and Anthems claim regarding Blue Cross Blue Cross members as separate, the government points to rules that prevent these members from competing with each other. Under these rules, Anthem is particularly powerful with the sole authority to contract with employers in 14 states.
Though a ruling still has yet to drop, Anthem has tried to play Aetna-Humana defeat to its advantage. Legal representatives for Anthem wrote in a court filing, “In Aetna, the Court could not conclude that the efficiencies were verifiable where plaintiffs raised concerns about the reliability of defendants’ ‘best of two contracts’ efficiencies estimates that defendants’ experts failed to ‘wrestle with’ through robust analysis.” Referring to its key economics expert Mark Israel, they added, “But here, Dr. Israel’s analysis overcomes any similar concerns.”
What does this mean for the future of health insurance mergers?
Aetna and Humana have already announced that they will “carefully consider all available options,” which could include an appeal. However, if the decision is appealed, it seems likely that the original ruling will be upheld, especially since Judge Bates’ decision was “very complete, very thorough, and very clear,” according to Gaynor. “The judge really covered everything that is relevant and covered it in depth.”
Some have speculated that, if the merger between Aetna and Humana is indeed dead, the two payers could look to mergers and acquisitions with smaller rivals like Molina, Centene Corp, or WellCare, to expand their market presence, according to Bloomberg. Both Aetna and Humana have cash on hand to explore other deals or to independently expand market presence.
Depending on how the Cigna-Anthem case plays out, it is possible that the era of mega-mergers is coming to an end. A court ruling against the merger would “draw a pretty deep line in the sand for future health insurance mergers,” Gaynor said. Future mergers might not be impossible, but “given how concentrated health insurance already is, it is reasonably likely that a merger between two health insurance companies would be between two companies that are already pretty big and likely have some non-trivial overlaps in at least one relevant product market.”
The recent changing of the guard at the executive level of the federal government is also something to consider. Sen. Jeff Sessions (R-AL), President Donald Trump’s nominee for Attorney General, does not have much of a track record when it comes to antitrust law and it is unclear who will lead the Department of Justice Antitrust Division. Until more information is available, “it is hard to know what direction they will pursue,” according to Gaynor.
Regardless of the approach the Trump administration takes toward mergers such as these and what shape future health reform takes, maintaining competition in health insurance markets will be essential to encouraging innovation and helping to contain costs.