California regulators have more power over health insurance company mergers due to Gov. Jerry Brown signing Assembly Bill 595.
The legislation requires payers to get approval from the state's department of managed health care for any transaction that affects a "significant number of enrollees," "involves a material amount of assets" or "adversely affects either the subscribers or enrollees or the stability of the health care delivery system because of the entity's market position, including, but not limited to, the entity's market exit from a market segment or the entity's dominance of a market segment."
The California Association of Health Plans opposed AB 595. In a statement to Healthcare Dive on Tuesday, the organization said it opposed the bill "because it will add unnecessary complexity and duplication to the health plan mergers and acquisition process and could increase healthcare costs."
California has seen two major payer mergers in recent years: Blue Shield-Care 1st and Centene-Health Net. Health Access California, which backed the legislation, expects the industry will consolidate further, and said the state needs protections to prevent plans that would hurt members and the healthcare market.
"The Department of Managed Health Care, which regulates health coverage for 96% of covered lives in California, needs to be able to scrutinize these deals and ensure they are good for California consumers," Health Access California said.
In a fact sheet, the group said health insurance consolidation is reducing patient choice and competition. Three payers control nearly 80% of the health insurance market in California and the top five insurers control more than 90%. "Although health plans claim mergers will lead to more efficiencies, lower costs, higher quality and better value, history often suggests the opposite," it said.
CA can't rely on the federal government to protect our consumers & health care system. "Recent mergers have revealed the need to beef up the authority of our state regulator to either deny or impose conditions on deals that are not in the interest of the patient or the public." https://t.co/4qHPBv63wN— Health Access CA (@healthaccess) September 11, 2018
There is evidence that growing payer consolidation affects prices. A 2017 AMA study found nearly 70% of U.S. markets were "highly concentrated" and nearly 90% had at least one insurer with 30% or higher market share. Another report of California specifically found that consolidated areas in the northern part of the state had higher premiums and increased hospital and physician services costs.
The new law comes after California Insurance Commissioner Dave Jones spoke out about the most high-profile potential merger involving a payer. Jones held a special hearing in June about the proposed $69 billion CVS-Aetna merger where the American Medical Association voiced opposition to the deal and warned it would lead to "likely anti-competitive effects on Medicare Part D, pharmacy benefit management services, health insurance, retail pharmacy and specialty pharmacy."
Jones later also opposed the plan. The U.S. Department of Justice will make the final call on that proposal, but the new law will give state officials more say over these kinds of major payer M&As in the future. Healthcare M&A activity remains hot. The second quarter of this year was the 15th in a row with more than 200 M&A deals in the sector, according to a PricewaterhouseCoopers report.