Insurance mergers: Harmful to providers and their patients
Guest post from antitrust attorney David Balto, former policy director for the Federal Trade Commission, and James Kovacs, an associate attorney at the Law Offices of David Balto
The multibillion-dollar health insurance mergers between Aetna and Humana and between Anthem and Cigna has been widely reported. While these pending mergers are financially lucrative for the companies and their stockholders, the most important and pressing question is if these mergers will benefit hospitals, other providers and consumers by improving the quality of healthcare and lowering costs. The answer is an unequivocal no.
Should hospitals care? Absolutely. The formation of a new Aetna and Anthem will create dominant insurance entities that can use their newly acquired power to dictate provider reimbursement and lower rates. Providers already know that size matters, and the larger the health insurer the more it can drive payments to unreasonable levels. Do consumers benefit? No. While insurers use monopsony power to drive down provider rates, any potential "savings" are not passed along to consumers. In fact, along with decreasing provider reimbursements, health insurance mergers actually lead to increases in consumer premiums, according to the National Bureau of Economic Research. Both providers and patients suffer.
Premiums and provider reimbursement are not the sole issues. As the Department of Justice (DOJ) has observed, insurance mergers can also lead to a reduction in quantity and quality of care. Moreover, by further decreasing the number of national insurers, the mergers will lessen insurer innovation, creating further disincentives to insurers to compete on the basis of creating new payment models and plans that favor improving delivery and quality of care, as the New York Times has noted.
It is not as though these markets were already robustly competitive. Studies have demonstrated most insurance markets are highly concentrated, according to the American Medical Association. In fact, a merger between Anthem and Cigna will result in anticompetitive levels of concentration in more than 800 geographic markets affecting 45 million beneficiaries, Law360 has reported.
Additionally, a recent report by the Commonwealth Fund found that 97 percent of Medicare Advantage markets are highly concentrated. The merger between dominant Medicare Advantage insurers Aetna and Humana will only exacerbate issues within these markets, further driving up costs for seniors.