Insurers: The Latest Players in the Consolidation Space

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Competition in the health insurance industry serves to protect consumers by providing access to affordable care. As Aetna looks to acquire Humana, and Anthem pursues Cigna, the proposed health insurance mergers have raised concerns over whether consolidation will reduce competition. During a recent Senate Judiciary Committee hearing on health insurance consolidation and its impact on consumers, the chief executives of Aetna and Anthem remained confident that the deals would enhance competition and reduce costs for consumers. Skeptics, however, argued the deals would reduce competition and ultimately harm consumers. A recent article in the New York Times highlights both sides of the debate.

According to the New York Times, the companies’ respective chief executives suggest that the deals would benefit consumers. Aetna CEO Mark Bertolini noted that Aetna and Humana overlap in only eight states, states in which other insurers already exist and provide competition, and together they would represent only 8 percent of the 54 million Medicare beneficiaries. Anthem CEO Joseph Swedish stated that an Anthem-Cigna merger would offer a wider network of physicians and hospitals from which consumers can choose. Opponents to the mergers argued that too much concentration could lower costs but simultaneously cause quality to suffer.

The Justice Department is reviewing the deals to determine whether they would violate the Clayton Antitrust Act of 1914, which prohibits acquisitions that may reduce competition.

In related HCFO-funded work, Drs. Herring and Trish explored how insurance concentration and its balance with hospital concentration affect health insurance premiums. They analyzed the relationship between employer-sponsored fully-insured health insurance premiums and the level of concentration in local insurer and hospital markets using the nationally-representative 2006-2011 KFF/HRET Employer Health Benefits Survey. They found that premiums are higher when insurers have more market concentration in sales of insurance to employers and lower when insurers have more market concentration in negotiations with hospitals. They also found that premiums are higher when hospital markets are concentrated. These findings suggest that although enhanced competition may mitigate insurer market power in selling policies, it may not translate to lower health insurance premiums for consumers.

Drs. Herring and Trish’s HCFO-funded study was cited in the recent Senate Judiciary Committee hearing mentioned above. Read the full article here.