Health Insurance Mergers Fact Check: Why Consumers Will Lose

Health insurance mergers will make things worse as consumers currently have too few choices and pay too much. The markets are already highly concentrated, and the mergers will result in higher premiums. Consumers are the ones who will suffer.
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In today's political climate, it is rare when Democrats and Republicans agree on any issues. But both parties, including presidential candidates Hillary Clinton and Carly Fiorina, agree it's time to take notice of mega-mergers. And, both concur that the mergers of health insurance giants Aetna and Humana and Anthem and Cigna are a bad deal for consumers.

The CEOs of the merging entities, Mark Bertonlini from Aetna and Joseph Swedish from Anthem, have put on a road show before Congress, in both the House and Senate, trying to suggest the mergers will lead to greater efficiencies and better service for consumers. But, as Senator Daniel Moynihan famously said, "everyone is entitled to their own opinions, but they are not entitled to their own facts."

And here the facts that tell a simple truth - the mergers will make things worse as consumers currently have too few choices and pay too much. Health insurance markets are already highly concentrated, the mergers will result in higher premiums, and that harm will not be overcome by new entry.

Myth #1: There is significant competition in health insurance markets

While no one disputed that the merger would combine four of the nation's five national insurers, they did argue that the U.S. insurance market is "flush with competition." That assertion is completely devoid of facts. By any measure, the vast majority of health insurance markets, 72 percent according to the American Medical Association, are highly concentrated. Moreover, data compiled by the Kaiser Family Foundation demonstrates that on average a state's largest insurer has a 55 percent market share. Only three insurers within a state have at least a five percent market share. Concentration is even more pronounced within Medicare Advantage markets. A recent study by The Commonwealth Fund found that 97 percent of Medicare Advantage markets are highly concentrated.

Along with impacting nearly 100 million beneficiaries, the mergers of Aetna and Humana along with Anthem and Cigna would further consolidate already highly concentrated insurance markets. According to antitrust analysis, the combinations and lessening of available plans would substantially lessen competition in nearly half of the United States. If the mergers between these four entities is allowed to proceed, the lack of competition in health insurance will result in even less consumer choice and higher premium prices.

Myth #2: The mergers will benefit consumers

The CEOs of both Aetna and Anthem have stated that the mergers will create significant cost-savings. However, when pressed in the Senate hearing by Senator Al Franken, the parties could not offer a single piece of evidence demonstrating that health insurance mergers would create efficiencies, or that they would pass along any savings to consumers. That is because there is no evidence that insurance mergers benefit consumers.

In fact, past mergers have done the complete opposite. Two separate studies, one analyzing the 2008 merger of UnitedHealth and Sierra and one analyzing the 1999 merger of Aetna and Prudential, demonstrate that post-merger, insurers raised consumers' premiums. The only way to truly ensure lower premiums is by increasing the number of insurers in each market. Without strong competition, there is no reason for the merged insurance companies to pass any savings to consumers. Furthermore, eliminating insurance competitors will not only lessen consumer choice, but also deter insurer innovation in coverage benefits. If there's no need to compete for customers, why change the way you do business?

Myth #3: Entry by new market participants will offset any harm

While dismissing their ability as national insurers to enter new markets, Anthem and Aetna were both quick to note that insurance entry by co-ops and vertically integrated provider health plans would provide viable competitive alternatives to the merged parties. First, let's be clear about the legal standard - in order to justify their merger the insurance giants must demonstrate that entry will be sufficient to deter any anticompetitive effects. This concept runs counter to the market for insurance. The Justice Department carefully studied entry and conditions and found that "entry defenses in the health insurance industry will be viewed with skepticism and will almost never justify an otherwise anticompetitive merger."

Additionally, the heightened entry cited by the parties is misleading. While the Affordable Care Act did allow for the creation of co-ops and other insurance entities, the majority are failing within the marketplace. And, in the case of the limited number of successful vertically integrated-provider health plans, none of them have expanded beyond their core markets. Lastly, while 2015 saw a 25 percent increase in new issuers entering the Health Insurance Exchanges, in 2016, there will be 12 percent fewer plans and 40 percent fewer preferred provider organization plans.

The CEOs of Aetna and Anthem are playing it fast and loose with the facts. Even a cursory review of the publicly available information and scholarly studies proves that each of the defensive statements offered by Aetna and Anthem is at best misleading or completely false. Americans will get a bad deal if these mergers are allowed to proceed.

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