Bigger May Be Better for Health Insurers, but Doubts Remain for Consumers


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Less choice leads to higher costs, says Lisa Hawker, head of an insurance brokerage.

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Peter Larson for The New York Times

Deals among the nation’s largest health insurers in recent weeks have been almost head-spinning. But whatever the details, if the combinations are finalized, the result will be an industry dominated by three colossal insurers.

Consumer advocates, policy experts and former regulators say that what may be good for the insurers may not be good for consumers, especially in the wake of a similar frenzy of deal-making among hospitals and doctors’ groups.

“The consolidation in both of these industries has been shown to have an adverse impact on consumers,” said Leemore S. Dafny, a former official at the Federal Trade Commission who is now a professor at Northwestern University’s Kellogg School of Management.

Anthem, which operates for-profit Blue Cross plans in 14 states, merging with Cigna, another large for-profit carrier, along with the planned deal for Aetna to join Humana, a smaller rival known for its private Medicare plans, would create two behemoths.

Along with the already enormous UnitedHealth Group, these companies would control nearly half of the American commercial health insurance market, according to Decision Resources Group. Each would have tens of millions of people enrolled in their plans, offered largely through employers or government programs like Medicare.

“I don’t think there’s a guarantee that bigger is better for the consumer,” said Sarah Lueck, a senior policy analyst at the Center on Budget and Policy Priorities who is also a consumer representative for the National Association of Insurance Commissioners, a group of state regulators who may individually weigh in on the potential mergers.

William J. Baer, who oversees the antitrust division of the Justice Department, which is reviewing the insurance mergers, told Bloomberg TV last month that the agency would look at each deal on its own merits but also take into account “a trend towards consolidation in the health care insurance market.” The agency declined to comment further.

The insurers insist that combining companies will lead to lower prices and better care for their customers. They point to billions of dollars in efficiencies.

The combination of Aetna with Humana would “promote greater operational efficiencies that enable us to lower costs,” Mark T. Bertolini, the chief executive of Aetna, told analysts in July after the deal was announced. The merger, he said, would “create value for our customers and provider partners.”

The companies also say the savings generated by these deals would ultimately benefit buyers. “The cost improvements go back to the employer, the governmental entity and/or the individual,” David Cordani, chief executive of Cigna, told CNBC last Thursday, emphasizing that he was confident the merger would receive the necessary regulatory approvals.

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If Finalized, the Commercial Market Before and After the Mergers





The sweeping changes in the market caused by the federal health care law, including greater government oversight and intense pressure to keep prices low, would also prevent insurers from raising prices too much, the insurers said. “If plans are going to be competitive,” said Clare Krusing, a spokeswoman for America’s Health Insurance Plans, a trade group, “they have to offer the most affordable premiums.”

The insurers also point to new rules under the health care law that require them to spend a fixed amount of the premiums they collect on care, essentially capping their profits even if they are charging much higher prices.

Still, businesses and brokers question the necessity of these mergers. “Are these companies not big enough that they needed to be bigger?” asked Don Mucci, a broker at Garrett-Stotz Company in Louisville, Ky., who helps small businesses find coverage. “They’re all huge.”

When area hospitals merged, they also promised greater efficiencies, he noted, but “I don’t see medical costs going down.”

Other brokers are also watching the developments closely. “In markets where there is less choice, there tends to be higher costs,” said Lisa Hawker, the president of employee benefits for Hylant, an insurance brokerage based in Toledo, Ohio. While the consolidation of insurers like Anthem and Cigna might improve their ability to focus on consumers, for example, businesses could also have a harder time negotiating, Ms. Hawker says.

After the mergers, regulators will be looking for changes in the competitive landscape, which will vary by location and the type of insurance — whether it serves large employers or offers private Medicare Advantage plans. In Kansas, for example, Aetna and Humana have 90 percent of the market for Medicare Advantage plans, according to data from the Kaiser Family Foundation.

For large employers that rely on national carriers to provide coverage to workers scattered across states, the pool of the five major entities would shrink to just three. To give their employees choice, for example, FedEx and Robert Half each offered both Anthem and Cigna to their employees.

Combined, Anthem and Cigna service about 21 percent of the commercial market, said Paula Wade, a health care analyst for Decision Resources Group, but in some areas, their market share is much more. In Richmond, Va., the two companies have nearly two-thirds of the market.

Hospitals and doctors could also face a serious challenge. “It really does give them a huge hammer to hit with in negotiations,” said Ms. Wade, who predicted the mergers would set off a greater frenzy among hospitals to combine.

While it is possible that a giant insurer battling a giant hospital system could lead to lower prices — because the insurer is able to extract lower prices from the large health system — the benefits may not necessarily flow to consumers, says Martin Gaynor, a health economist at Carnegie Mellon University. In a market with two behemoths, “consumers are left on the outside looking in,” he said.

And regulators may not be convinced by the argument that the insurers and the hospitals need to be big to keep each other in check, said David A. Balto, a Washington antitrust lawyer who worked at both the F.T.C. and Justice Department. “It’s a Faustian bargain,” he said.

The real question for regulators is whether the markets remain competitive. Employers and individuals may be able to rely on strong local players like nonprofit Blue Cross plans.

Large medical centers are also increasingly entering the insurance market. But start-ups have a hard time entering the market, and the five current players — all well-capitalized companies with a thirst for more customers — would most likely be the new entrants in markets where they are not already strong.

Some policy experts say they worry that insurers will no longer be under as much pressure to work with hospitals and doctors on new ways of delivering care. “They don’t have to compete and be innovative,” said Dr. Robert Berenson, a health policy expert at the Urban Institute, a research group based in Washington.

The insurers insist that merging will accomplish more innovation as they borrow new approaches from one another. In the case of Anthem and Cigna, “both organizations are focused on partnering with physicians and individuals to improve health quality, improve health costs,” Mr. Cordani said in the CNBC interview.

Other insurers may be stepping up as well. UnitedHealth remains a potentially robust competitor in any market where it is not already strong, and Centene Corporation, best known for its Medicaid plans, says it might move more into Medicare, buying some of the plans that could be divested if some of its competitors merge.

The concerns about consolidation may be overblown. When two of the largest companies offering prescription drug benefits, Express Scripts and Medco Health Solutions, merged in 2012, many experts were worried that the market would be significantly less competitive, recalled Adam J. Fein, president of Pembroke Consulting, a company that follows the pharmaceutical industry.

“Many of the fears that were advertised did not come to pass,” he said, noting that there were discussions of how independent pharmacies, for example, would be driven out of business, but their numbers have not changed. Other competitors, like UnitedHealth’s prescription drug benefit management business, have gotten stronger; UnitedHealth recently bought another company, becoming even larger.

Still, consumer advocates and others remain wary of the pending insurance mergers. “I don’t think any of us is under the illusion that this is great for consumers,” Ms. Lueck said.



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