Regulators Need to Scrutinize Health Insurance Mergers

Two proposed mergers involving four of the nation’s biggest health insurers could reduce competition in an important industry. That’s why federal and state regulators need to closely study these deals and, if necessary, force the companies to sell some parts of their businesses.

Earlier this summer, Anthem agreed to acquire Cigna for $48 billion, and Aetna announced a $37 billion takeover of Humana. The antitrust division of the Justice Department and state governments are reviewing the deals. If regulators approve both transactions, the number of big national health insurers would drop from five to three.

The companies say that being bigger will give them the ability to negotiate lower prices with hospitals, physicians and drug makers and make health care more efficient. Not surprisingly, trade associations representing doctors and hospitals are not thrilled by that idea. They say these mergers will not only hurt them, but will hit consumers with higher premiums and other costs.

There is no doubt that insurers are trying to grow to get more leverage in negotiations with health care providers that have themselves become bigger in recent years. Many hospitals have bought up other hospitals and physician practices. That earlier wave of mergers among health care providers led to higher medical costs in many parts of the country. Regulators and courts should never have approved some of those deals.

The Affordable Care Act, the health reform law, wisely requires insurers to spend at least 80 percent of premium revenue on medical care. But that rule would not prevent them from charging higher premiums as they face less competition. There is no guarantee that insurers will fully pass on the lower prices they negotiate with doctors and hospitals to consumers, experts say.

Because the health insurance industry is fragmented, these mergers will not have the same impact across the country. In some metropolitan areas and in the market for certain kinds of insurance, like Medicare Advantage plans, some consumers will no doubt have fewer choices. But in places where the merging companies do not compete with each other, there will be little or no change. Antitrust regulators have to do a detailed geographic and product-by-product analysis for each deal and for both mergers taken together.

Some antitrust experts have raised another concern. The mergers could reduce the number of insurers competing on government-run exchanges set up under the health reform law. There is good evidence that having more insurers on an exchange tends to drive down premiums, which in turn, reduces federal subsidies to individuals buying insurance on those exchanges.

In past mergers, the Justice Department has required that insurance companies sell some of their plans to other insurers as a condition for approving those deals. That will most likely be necessary in these deals, too. But with so few big insurers left in the marketplace, the companies might have a hard time finding buyers for those plans.

The Affordable Care Act has demonstrated that competition is good for consumers and taxpayers. Antitrust regulators must make sure that mergers in the health care industry do not reduce choices.

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