Will Health Insurance Mergers Stifle Market Competition?

February 18, 2016 - Health insurance mergers and acquisitions have been a major topic within the payer industry lately. While companies that have pushed through with their mergers cite their potential cut of competition as a way to lower prices for the end consumer, there has been scant evidence that this is the case.

There has been no real impact on lowering premiums among beneficiaries due to health insurance mergers, the Harvard Business Review found. In fact, research shows that greater regional competition within the health insurance industry could improve prescription drug benefits and other health plan options.

Mergers may increase monthly premium costs

More importantly, the statistics show that less competition in the health payer market may lead to higher monthly premiums for beneficiaries in employer-sponsored, commercial health plans and coverage obtained on the health insurance exchanges.

In particular, the Anthem-Cigna and Aetna-Humana mergers could harm the end-consumers as well as the health insurance market because the “balance of power is moving too far away from consumers,” former Secretary of State Hillary Clinton said in a public statement.

Clinton has urged policymakers to look more deeply into these two major health insurance mergers to see if any illegal activities have taken place or trusts have formed so that consumers and other businesses do not suffer.

The National Association of Insurance Commissioners (NAIC) published a report that shows how these health insurance mergers – the Aetna-Humana and the Anthem-Cigna – will affect the insurance markets in various states. Essentially, the report finds that the mergers will bring payer concentration or a rise in consolidation.

AMA, AHA find flaws with the two health insurance mergers

The American Medical Association (AMA) along with the American Hospital Association (AHA) have released statements urging against establishing these two major health insurance mergers. The issue at hand is that the Aetna-Humana and the Anthem-Cigna mergers will pose problems for patient care, provider reimbursement, and consumer costs.

The AHA stated in a letter that the two mergers move beyond what typical hospital mergers bring, as it would lead to the top five insurers in the country to consolidate into three national payers. This may lead to a competitive obstacle for other insurers attempting to work in the market. At the end of the day, the AHA seeks policymakers to ensure anti-trust laws are followed in these mergers and that consumer rights remain intact.

Will insurance mergers bring a monopoly in the market?

While the AMA and AHA may find potential issues with these two large health insurance mergers, Patrick Pilch, Managing Director and National Healthcare Advisory Leader of The BDO Center for Healthcare Excellence & Innovation, stated, “I don’t envision seeing monopolies, possibly oligolopic organizations. There certainly will be market concentrations.”

“Theoretically, mergers could allow insurers to offer more competitive products and possibly pass on the savings to consumers,” he continued. “From that platform in terms of scale, insurers would engage more directly with consumers as we move more toward a consumer-driven healthcare world.”

“With more data available and the ability to understand geographies to offer different kinds of plans, the opportunity is also to identify a diversification mix process that could be availed through a merger or acquisition.”

“The goal would be to understand the market segments, understand different distribution channels and the public and the private exchanges. These are the three biggest driving forces behind the mergers,” Pilch explained.

“Through the FTC, regulators are looking at where the measures of concentration are and how they play there. Let’s say one particular market has a high Medicaid volume. The managed Medicaid payer in that market has the premium product and the premium market share. Regulators may look deeper into that. There are other measurements to explore the issues of mergers.”

“As far as a pure monopoly, I don’t see it as I do believe there will be considerable pushback by the FTC,” concludes Pilch.

With regard to the impact of the health insurance mergers, Thomas O’Connor, Managing Director at Berkery Noyes, told HealthPayerIntelligence.com that there have been more acquisitions and mergers taking place throughout the entire healthcare industry and that the Affordable Care Act may play a role in pushing forward these consolidations.

Has there been a significant rise in health insurance mergers and acquisitions and why?

“There are some very large deals in the market today including the Anthem-Cigna and Aetna-Humana transactions,” O’Connor began. “There are those that are pending and fascinating, seeking to bring the top five down to the top three, but pull away those top deals and what you’re really seeing is middle-market deals around technology and software solutions along the pain points in the market.”

“Because of the Affordable Care Act and all the activity it spawned, the whole industry is going to change. This could impact everything from consumerization of healthcare and getting more information to payers to solving some of the problems with the Affordable Care Act like high-deductible plans,” he continued.

“There are going to be a lot of transactions,” O’Connor explained. “That transition – that chaos – is spawning a plethora of deals. These transactions tend to be smaller and often have a focus on software and data analytics. Putting Anthem-Cigna and Humana aside, which are huge deals, we’re observing many acquisitions throughout the space.”

“Also unlike the provider market, which has experienced a significant amount of deals over the years, we’ve been seeing much more transaction activity on the payer side during the last 24 months.”

Will the Aetna-Humana and Anthem-Cigna mergers bear a negative or positive impact on consumers? In what ways?

“There are many different ways to look at it,” O’Connor transitioned. “Scale will help. It’s interesting to see that Humana came out yesterday and they had a tremendous amount of losses from the plans they put in effect because the Affordable Care Act is so new. They’re all testing and learning about how to interact with consumers in the marketplace today and how to price that.”

“Scale will help them,” he continued. “Consumers are facing an onslaught of choices much like the 401K plans in the past where they had to take more control over their insurance. Instead of an employer model, it’s moving more towards a consumerization model where they will have more input into their decisions and will pay for it themselves.”

“The companies that are bigger and have more resources can offer additional solutions,” he concludes.

“It’s positive for the industry and consumers can benefit from it, but time will tell.”

Could the Anthem-Cigna and Aetna-Humana mergers stifle competition in the health insurance market or potentially lead to a monopoly on the market?

“I don’t think so,” he clarified. “There’s a high level of innovation in the market today including the health insurance exchanges. Moreover there are many different people and plenty of opportunities for money to be made. There’s a lot of money in the market as well.”

“In addition there are more payers today than there have ever been. It’s gone from somewhere around 85 to 110 payers in the marketplace. The big names are there but the health insurance exchanges will be a more significant part of the market as we move forward.”

“There are challenges and opportunities to offer differentiated products, varied prices, and distinct solutions. It will be a little more aligned, personal, and consumer-centric. Some of the big guys need to innovate more over time, but I don’t expect it to stifle competition. The Affordable Care Act has brought a once-in-a-lifetime change. All of this has created an opportunity for entrepreneurs to solve problems.”

What advice would you offer to health payers looking to pursue scale and acquisitions?

“Aetna’s acquisition of bswift is very interesting. Along with scale, they also need technology,” he continued. “Buyers are being very strategic in their acquisitions. In health in general, we’re seeing conversions among providers and payers. We’re noticing providers buy payers and payers buy providers.”

“As they look at the landscape, they need to take a long-term view and have a very good understanding of where healthcare will be because it’s changing rapidly right now. There are big players today, but there are also people coming into the market. We’re not sure exactly where the health market will be in the next five to ten years, but it will be changed.”

“I think technology – we do a lot of technology healthcare deals – has made it easier and led to the rise of competitors in the marketplace. They need to be strategic in their view on where the market is headed,” O’Connor concluded.