Last summer, Aetna agreed to buy Humana and Anthem announced it was purchasing Cigna. These are just two of the most recent deals in a national flurry of recent insurance mergers. Both deals are still subject to approval by the US Department of Justice (DOJ) and state regulators. If allowed to go through, the number of major health insurers in the US will be reduced from five to three.
What’s driving the mergers?
What’s driving the recent payer mergers depends on who you ask. According to the Committee for Economic Development (CED), many Republicans believe regulatory burdens imposed by ACA are increasing costs to the point that smaller insurers can no longer afford to stay in business. Many Democrats believe the sole motivation is to increase profits.
What proponents are saying
An article in Bloomberg that supports the mergers argues the ACA has already encouraged providers to consolidate. However, it also allows providers to increase their charges to payers. Therefore, consolidation in the insurance industry will allow insurers to bargain with providers on more equal terms.
According to CED, executives of Anthem, and Aetna are arguing that small, local insurance companies would keep the industry competitive and the mergers will equal better quality of care at lower prices.
Potential drawbacks to the mergers
On March 21, Anthem filed a lawsuit against Express Scripts, its vendor for pharmacy benefit management services, to recover damages for pharmacy pricing that is higher than competitive benchmark pricing. The lawsuit also seeks to recover damages related to operational issues and for the right to terminate its contract with Express Scripts. The suit is seeking $15 billion in damages. This is just one example of how insurers might gain more bargaining power as competition decreases.
Critics believe the lack of competition will also lead to fewer plan choices for consumers and greater premiums. In an article in Law360, David Balto, an antitrust attorney and former policy director of the Bureau of Competition at the Federal Trade Commission, said if the mergers go through, employers and other purchasers will have fewer choices and consumers will have fewer plan options and face higher premiums. “Moreover, healthcare providers — the heart of the health care delivery system — will be faced with reduced reimbursement potentially leading to a reduction in services rendered,” Balto said. “As important, the remaining three insurance firms will dictate the terms of innovation vital to correcting the flaws in the healthcare system and moving to a less costly higher performance health care system.”
Both mergers are currently under scrutiny by the Antitrust Division of the DOJ. According to American Progress, there are a couple of things the DOJ will have to consider, including:
- In local markets in which the insurers currently compete, is one a good substitute for the other or are they primary competitors?; and
- What would be the overall competitive impact of the mergers?