California Regulators Express Skepticism Towards Health Insurance Mergers

February 4, 2016

 

California regulators are concerned that too much consolidation in the health insurance industry could weaken competition and increase premiums for consumers, and it is possible that they may reject the mergers subject to their approval.

 

At this moment, regulators are reviewing three pending mergers: Anthem’s acquisition of Cigna for $52 billion, Aetna’s acquisition of Humana for $37 billion, and Centene’s $7 billion bid for HealthNet. All three of these mergers require approval by both California’s Department of Managed Health Care (DMHC), and the California Department of Insurance (CDI), led by Commissioner Dave Jones. The state’s chief enforcer, California Attorney General Kamala Harris, must also approve the transactions.

 

The Centene-HealthNet merger would grant Centene a substantial market share among private administrators of Medicaid, the federally funded health program for low-income Americans. California’s Medicaid program, known as Medi-Cal, is the largest in the United States with 12.5 million patients enrolled. Almost 10 million people, or 77%, of the Medi-Cal population are covered under managed care organizations (MCOs). HealthNet is an important insurer within this space, serving 1.44 million, or 14.62%, of Medicaid managed care patients in the state. Centene’s California subsidiary, known as California Health & Wellness, currently serves 183,260 people in Medi-Cal, and a combined Centene-HealthNet company would possess a 16.46% market share. This merger would create the dominant insurer in California’s Medicaid managed care. Instead of competing on the merits with HealthNet and expanding its network through competition, Centene has decided to simply acquire the rival company and reduce consumer choice.

 

On December 7th, 2015, DMHC held a hearing to gather public testimony on Centene’s acquisition of HealthNet. Consumer advocacy groups expressed concern about the merger, arguing that both insurers have poor track records of service and that the merger would not result in lower prices or better quality for consumers. They concluded that DMHC should require detailed quality and performance data from Centene.

 

More recently, on January 22, Commissioner Jones held a hearing on the Centene-HealthNet merger. For six hours, the Commissioner asked executives and industry experts tough questions and implied that he might reject the proposal. The Commissioner cited peer-reviewed studies that show a rise in health insurance premiums after companies merge and observed that there are no studies showing the opposite trend.

 

The skepticism toward the proposed Centene-HealthNet merger is a sign that California regulators are determined to thoroughly investigate health insurance mergers. The criticisms cited by Commissioner Jones, consumer groups, and provider organizations of the Centene-HealthNet merger are also applicable to the larger Anthem-Cigna and Aetna-Humana mergers. These mergers will further consolidate insurance markets and offer no tangible benefits. With such heightened scrutiny from regulators, California is certainly a state worth watching during the wave of proposed health insurance consolidation.

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