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Critics question justification for health insurer mergers

Deals may not boost innovation or be a natural response to market forces

As regulators continue to review the Aetna-Humana and Anthem-Cigna mergers, two new blog posts from Health Affairs call into question the companies' rationale behind why the mega-deals are necessary.

Provider and consumers groups have been outspoken about what they say are the deals' potential to harm competition, though so far both mergers have made headway winning approval from state regulators as the Department of Justice continues its review. For their part, the insurers have argued the mergers won't harm competition and will help accelerate the shift from volume-based to value-based reimbursement.

Yet while many have written about how the mergers would affect health insurance premiums, the mergers' effect on innovation within the insurance sectors has received scant attention, write Christopher Ody, an applied microecnomist, and Leemore Dafny, a Northwestern University professor who has studied insurer mergers and testified last fall in a hearing about the two mega-deals.

So to predict how that might play out, Ody and Dafny defined innovation as physician network breadth, reasoning that a greater variety in network offerings expands consumers' options and thus can be seen as a marker of innovation in the insurance marketplace. In charting this network breadth against market concentration, their results show that "the bottom line is there is no evidence of greater product innovation in more concentrated insurance markets," according to the post.

In addition, two of the main reasons the companies' lawyers have given for why the deals are necessary in the first place don't exactly hold water, Thomas Greaney, a St. Louis University School of Law professor and expert on healthcare antitrust law, writes in his blog post, echoing testimony he gave during a hearing on Capitol Hill about the mergers.

In regard to the "Sumo wrestler" theory, some argue that consolidation within the provider and payer sectors spur each side to keep bulking up in order to counter the other side's market and pricing power. Yet economic theory shows that "bilateral monopolies" don't benefit consumers as much as competitive structures in both markets, Greaney writes. Plus, there's been evidence that sometimes dominant payers and providers team up to undercut their rivals, he notes.

Others, Greaney says, argue that the Affordable Care Act's incentives for healthcare integration justify consolidation. But antitrust enforcers have pointed out that the reform law depends on competitive markets, and courts have not sided with the argument that the ACA causes consolidation, he writes.

To learn more:
- read Ody and Dafny's post
- here's Greaney's post

Related Articles:
Lawmakers, industry leaders clash over effects of healthcare consolidation
Senate panel grills Aetna, Anthem execs on merger deals
CEO Mark Bertolini: Humana deal will help Aetna compete in consumer-driven marketplace
Insurer mergers make headway with state regulators
American Medical Association: Insurer mergers would diminish competition