Policy and Regulation News

AMA: Insurer Mergers Expand Market Power, Reduce Competition

By Sara Heath

Healthcare mergers have been of great discussion as of late, as  Aetna announced its $37 billion acquisition of Humana, and Anthem its acquisition of Cigna. Although Aetna and Anthem officials state that these mergers will benefit the healthcare industry by streamlining costs and care, many medical associations say mergers will diminish market competition, resulting in increased beneficiary premiums and decreased provider payment.

A recent study of health insurance market competition by the American Medical Association (AMA) confirms these points, showing that health insurers maintain significant market power that will only increase with company mergers.

The study, which uses data from 2013 enrollments in commercial fully and self-insured plans, shows that these proposed hospital mergers could breach Department of Justice (DoJ) antitrust guidelines in 97 metropolitan areas, and could decrease competition in as many as 154 metropolitan areas in 23 states. The Aetna and Humana merger is expected to enhance market power in 15 metropolitan areas and 7 states, the study indicates. The merger could potentially also raise antitrust concerns by diminishing competition in 58 metropolitan areas in 14 states. The Anthem acquisition of Cigna may have similar effects, according to AMA. This merger could enhance market power in 85 metropolitan areas in 13 states. It could also potentially decrease competition in 111 metropolitan areas in all 14 states in which Anthem operates.

According to the AMA, this decrease in competition could negatively impact both beneficiaries and providers. “High concentration levels in health insurance markets are largely the result of consolidation (i.e., mergers and acquisitions), which can lead to the exercise of market power and, in turn, harm to consumers and providers of care,” AMA writes.

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  • AMA acknowledges in the study that the effects of insurer mergers on beneficiaries have been discussed at great length by various parties. As reported by HealthPayerIntelligence.com, medical associations such as the American Hospital Association (AHA) have urged the DoJ to investigate and monitor the antitrust concerns these insurer mergers raise. Although AMA mirrors those sentiments, it also delves into the effects insurer mergers will potentially have on providers, specifically on the way in which providers may be compensated.

    The study explains that health insurer mergers may result in increased monopsony power, or “the ability to reduce and maintain input prices (e.g., prices paid to physicians) below competitive levels.” This means that insurers may be able to determine the amount that they will pay physicians, and that it will likely be an amount that is under competitive levels.

    This may have negative effects on care for patients. “The exercise of monopsony power would also reduce the quantity (or quality) of health care below competitive levels and in turn harm consumers,” AMA writes. “For these reasons, proposed mergers that create or increase insurers’ monopsony power should also raise antitrust concerns.”

    Because of their findings, AMA officials are urging federal policymakers and regulators to take preventative action against these health insurance company mergers.

    “If a health insurer merger is likely to erode competition, employers and patients may be charged higher than competitive premiums, and physicians may be pressured to accept unfair terms that undermine their role as patient advocates and their ability to provide high-quality care,” says AMA President Steven J. Stack, MD. “AMA is urging federal and state regulators to carefully review the proposed mergers and use enforcement tools to preserve competition.”

    The AMA study cites a handful of case studies in which DoJ pressure stops insurer mergers from occurring. For example, the 2010 proposed acquisition of Physician’s Health Plan of Mid-Michigan by Blue Cross Blue Shield of Michigan was called off because the DoJ threatened to block the acquisition with an antitrust lawsuit.

    AMA, among other medical associations, is suggesting similar strategies to block the current acquisitions. As an increasing number of organizations such as AMA and AHA speaks out against these mergers, it is up to DoJ to take action against them.