This post was contributed by Tim Norbeck, CEO of the Physicians Foundation, and Walker Ray, MD, past president and current board member of the Physicians Foundation.
In September 2015, we wrote a blog entitled: “When it Comes to Health Insurance Mergers, Bigger is Not Going to be Better.” At the time, Anthem was attempting to purchase Cigna for $54 billion, while Aetna wanted to buy Medicare Advantage coverage provider, Humana for $37 billion. Had these proposed mergers gone through, the top five U.S. health insurers would have been reduced to only three. While the other member of the big three, United HealthCare, was not looking for a merger, it didn’t stand pat either. It added a pharmacy benefits manager to keep that cash flow surging.
As readers know, in February, a federal judge blocked Anthem’s attempted acquisition of Cigna, opining that the merger of the country’s two largest insurers would make it more difficult for the nation’s large employers to secure competitive rates for health insurance. U.S. District Judge Amy Berman Jackson stated, “The evidence has shown that the merger is likely to result in higher prices. Anthem is encouraging the Court to ignore the risks posed by the proposed constriction in this health insurance industry,” she added, “on the grounds that consumers might benefit from the large size of the new company in other ways.”
The insurance industry argument benefiting in other ways is laughable. Who has ever gotten a better deal negotiating with a monolith? But, of course, we ask a rhetorical question. The AMA’s response to the judge’s ruling was right on. “The significant absence of health insurer competition in most markets is detrimental to patients and poses an important public policy problem,” said its president, Andrew Gurman, MD. We might have said “in all markets.”
As for the Aetna and Humana deal, those plans were discarded after U.S. District Court Judge John Bates ruled in January that the acquisition was “likely to substantially lessen competition" in certain markets for Medicare Advantage plans and Affordable Care Act options. Echoing the opinions of almost all physicians, Judge Bates questioned the company arguments that they would cut their costs and in turn, lower costs to consumers. We would ask, as the Judge suggested, when did that ever happen? There is little doubt that they would save on operating costs by merging, but there is great skepticism, bordering on the incredulous, as to them actually passing on those savings to consumers. Bigger is definitely better for the big, but not so good, thank you, for the little guy.
And even if the health insurers were really motivated to pass on savings to consumers, there is some disagreement out there that questions whether, in fact, savings will accrue to those who employ the economies of scale. In a January 2016 healthcare blog in Health Affairs, Paul von Ebers mentions that several studies of health insurers have found little or no economies of scale following mergers. Furthermore, back in 2004, after Aetna’s disastrous merger with U.S. Healthcare, University of California health economist James C. Robinson described Aetna’s transformation and lessons learned:
In the new thinking, economies of scale exist in health insurance, but they are modest and do not bring major cost reductions sufficient to support low premiums, further growth, market domination, and eventual profits.” In other words, “where’s the beef?
The American Medical Association and the American Hospital Association have every reason to worry about mega mergers and their effect on negotiating leverage in their contracts with physicians and hospitals.
Furthermore, with respect to mergers, how have the airline mergers worked out for the consumer/passengers? As Tom Gara wrote in BuzzFeed, “11 domestic airlines have shrunk down to five extremely big ones.” Many passengers have found that less competition translates into less options and shabbier customer relations. Chances are that if you have traveled by air in the past year or so, you have noticed the difference. One could point to the now notorious United Airlines incident in April, without debating the facts of the matter, where a paying passenger was dragged off the airplane. There will undoubtedly be other similar types of victims. Without real competition, the bigger definitely get brassier.
Clearly, what has happened over the past 19 months, relative to insurers and the airlines, only serves to confirm that bigger is not better for the consumer/patient/customer. It never was.
