Health Insurers Seeking Mergers Play Down Antitrust Concerns

September 29, 2015

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Source: The New York Times

The chief executives of two of the nation’s largest health insurance companies told skeptical senators on Tuesday that consumers would benefit if the federal government approved their plans to acquire two other big insurers.

But Consumers Union, a consumer advocacy group, expressed doubts about the deals, and Senator Richard Blumenthal, Democrat of Connecticut, objected to the mergers, saying they could cause harm by reducing competition.

“I am deeply concerned about these mergers because of the potential impact on competition and the concentration of power in fewer hands,” said Mr. Blumenthal, who as the attorney general of Connecticut joined a sweeping antitrust suit against Microsoft in 1998.

Aetna has announced plans to acquire Humana, and Anthem wants to buy Cigna.

In testimony before a Senate Judiciary subcommittee, Mark T. Bertolini, the chief executive of Aetna, and Joseph R. Swedish, the chief executive of Anthem, said the transactions would improve care and cut costs for consumers.

Mr. Bertolini said his company’s proposed merger with Humana “will enhance competition” by giving consumers a strong alternative to Blue Cross and Blue Shield plans, which have the largest share of the market in many states.

Aetna and Humana offer insurance on the public insurance exchanges in 24 states, but overlap in only eight, Mr. Bertolini said. And in those eight states, he said, other insurers also do business, so “there will be no material change to the competitiveness of the commercial health insurance market as a result of our transaction.”

Mr. Bertolini described Humana as “a large Medicare company” that provides comprehensive coverage to more than three million Medicarebeneficiaries under contracts with the federal government. Aetna, he said, provides coverage to 1.2 million people through its Medicare Advantage plans.

In a recent report, the Kaiser Family Foundation, a health policy research group, said, “If the deal between Aetna and Humana proceeds, the consolidated firm would provide coverage to more than one-quarter — 26 percent — of all Medicare Advantage enrollees nationwide, making it the leading Medicare Advantage insurer.”

But Mr. Bertolini analyzed the deal in different terms. “The combined company will have 4.4 million Medicare members, representing only 8 percent of the 54 million beneficiaries enrolled in Medicare,” he said.

The private Medicare Advantage plans compete not only with one another but also against the traditional fee-for-service Medicare program, through which two-thirds of beneficiaries still receive care, Mr. Bertolini said.

One of the more remarkable moments of the hearing came when Mr. Blumenthal criticized the mergers, even though Aetna, which was founded in Hartford in the 1850s and still has its headquarters there, is a pillar of the state’s economy.

Mr. Blumenthal said he was “deeply troubled” by evidence suggesting that consumers and health care providers would not benefit from the insurance company mergers. He rejected arguments by Mr. Bertolini and Mr. Swedish that new insurance companies were entering the market and creating new competition.

In fact, Mr. Blumenthal said, “there are powerful barriers to entry” for new insurers.

After the hearing, Mr. Blumenthal said that Aetna was “a part of Connecticut’s economic DNA,” a source of jobs and corporate philanthropy. But, he said, “the antitrust analysis is separate and apart” from the company’s role as an employer in Connecticut. He said the merger could adversely affect consumers in Connecticut and other states.

Senator Mike Lee, Republican of Utah, who called the hearing as chairman of the antitrust subcommittee of the Judiciary Committee, said he was determined to find out why “the insurance industry is rapidly consolidating.” Senator Amy Klobuchar of Minnesota, the senior Democrat on the subcommittee, said she wanted to know “whether the claims of consumer benefits, corporate efficiency and lower costs are realistic.”

Mr. Swedish said his company’s merger with Cigna would “uniquely benefit consumers” by expanding access to care through a more extensive network of doctors and hospitals.

He said that the combined company would face “robust competition” in many geographic markets and product lines, including health insurance for individuals and small and midsize employers, and administrative services for big businesses that insure themselves.

George Slover, senior policy counsel for Consumers Union, was skeptical.

“There are strong indicators, to us, that these mergers could create too much concentration, in too many markets, and cause too much harm to consumer choice,” Mr. Slover said. For example, he said, a dominant insurer could force doctors and hospitals to cut costs so much that the quality of care might suffer.

The Justice Department is reviewing the deals to see if they would violate the Clayton Antitrust Act of 1914, which generally prohibits mergers and acquisitions if the effect “may be substantially to lessen competition.”

“At this point,” Mr. Slover said, “we have a hard time seeing how these mergers could pass muster under the Clayton Act. And the stakes for consumers are high.”

Prof. Leemore S. Dafny, a health economist at Northwestern University who used to work at the Federal Trade Commission, said, “If past is prologue, insurance consolidation will tend to lead to lower payments to health care providers,” but the savings will not be passed on to consumers.

Moreover, Professor Dafny said, “there is no research showing that larger insurers are likelier to innovate.”

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