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"Too Big to Fail" Also Applies to Health Care

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We hear a lot about "too-big-to-fail" banks, and rightly so. It's time to bring that same discussion to health insurance.

Most Americans first learned about too-big-to-fail when financial industry recklessness crashed our economy, causing an avalanche of foreclosures and throwing millions out of work. With health care now making up 17 percent of U.S. gross domestic product and affecting literally every one of us, it's time to worry about concentration in the health insurance marketplace.

Many have sounded alarm bells over the fact that the five biggest U.S. banks now control nearly half the market. In comparison, America's four largest health insurers controlled 83 percent of the market as of 2014. (This includes the Blue Cross/Blue Shield Association, whose affiliates are technically separate but have exclusive, non-overlapping market territories and thus don't compete with one another).

Health insurers probably can't crash our economy, but they can impact it greatly, and the decisions they make truly have life or death consequences.

I've been thinking about this lately because state insurance regulators here in California are considering whether to allow several of our state's major health insurers to merge. Anthem, California's second largest health insurer, is poised to spend $54 billion to acquire rival Cigna, the state's sixth largest health insurer; while Aetna, the third largest health insurer in the state, is set to absorb Humana, California's fifth largest health insurer, to the tune of $37 billion. Nationally, these four companies rank third, fourth, fifth, and seventh in size. This would significantly reduce competition in California, where the market is already heavily concentrated in just a few firms.

Like other fields, lack of competition in health insurance is generally bad for consumers. As The Commonwealth Fund reported last year, "several studies document lower insurance premiums in areas with more insurers," while insurance mergers tend to lead to higher premiums.

As an advocate for communities of color, I worry about these impacts, and I also worry about the specific effect on diverse communities in a state where people of color make up about 62 percent of the population.

In California and nationwide, communities of color have specific health challenges. Among other things, they disproportionately lack health insurance (despite improvements under the Affordable Care Act) and are more likely than whites to suffer from chronic health issues, often related to air pollution (that increases rates of asthma) or other environmental conditions.

This makes it important for health insurers to recognize the importance of diversity in order to be able to serve this diverse population. Aetna, for example, has a weak record, with people of color making up just 14 percent of the company's executive positions and 15 percent of its board of directors. Communities of color are also underrepresented in Aetna's rank-and-file staff. Additionally, Aetna rarely contracts with minority-owned suppliers, contributing little to our state's diverse business economy.

Because of America's ongoing racial wealth gap, we're particularly concerned about the effect of health insurance mergers on affordability - though of course premium increases affect individuals and employers of all backgrounds. Companies looking to merge typically tout how combining will create efficiency and save costs, but - as noted above - these efficiencies seem to benefit stockholders and executives much more than consumers. We've therefore proposed that, if Aetna and Humana are allowed to merge, they should put their money where their mouth is by pledging a five-year freeze on premium increases. If they're so sure they can save money by merging, the people and small business owners who struggle to pay the cost of health coverage should benefit.

Keeping premium hikes under control benefits taxpayers, too, since under the Affordable Care Act federal tax dollars provide subsidies to help low-income families buy insurance.

I could go on citing specific questions about these mergers, but the issue of health insurer consolidation is bigger than any one merger or any particular constituency that a given merger might impact. Health coverage isn't a luxury; it's a necessity. And as a nation we've chosen (in large part due to lobbying pressure from big insurers) to base our system of paying for health care on private insurance rather than a government-run single-payer plan. The least we can expect government to do is to ensure that we don't put Americans at risk because a small handful of too-big-to-fail insurance giants have free reign to take advantage of us all.