Justice Louis Brandeis once observed that "sunlight is the best disinfectant." That is certainly true when it comes to regulatory action. Regulators provide an open decision making process in which there is public discourse and participation and an opportunity for transparent airing of critical issues.
Nowhere is sunlight more essential then in the case of the ongoing health insurance mergers of Anthem-Cigna and Aetna-Humana, which will reduce the number of national insurers from five to three and create three mega firms dominating the market. The insurance market has suffered from a lack of competition, choice, and transparency for years. As we have explained elsewhere, state insurance commissioners have the ability to use the sunlight of the regulatory process to ensure these mergers are carefully evaluated.
And the best model of this occurred in California. On Tuesday, March 29, the California Department of Insurance held a hearing examining the proposed health insurance merger of Anthem-Cigna. This acquisition has come under scrutiny for the potential for reduced competition, higher healthcare costs, and reduced access to care.
Commissioner Dave Jones heard several hours of testimony from the merging companies, healthcare providers, consumer groups, and the public, and he asked questions about the acquisition and its impact on consumers. The Commissioner stated that he had doubts about whether the merger would benefit consumers and that the burden was on Anthem and Cigna to demonstrate this fact. However, he agreed to reserve judgement and issued a statement thanking those who participated and promising to make a decision in the next several weeks.
Executives from Anthem and Cigna testified that the merger would benefit consumers, help the transition from a fee-for-service system to value-based care, and not harm competition in the California health insurance market. They also stated that the $54.2 billion merger would result in $2 billion worth of savings from various efficiencies, and that the MLR ratio would ensure that these savings would be passed on to consumers.
The merger clearly raised competitive concerns. The combined Anthem-Cigna company would have over 60% market share of the administrative-services-only (ASO) market. The merging parties disputed that but they could not provide alternate numbers. Additionally, the executives stated they could not provide any commitment that prices for health care products would not increase. Finally, Jones stated that in the past Anthem had implemented unreasonable rate increases, and asked for a guarantee that the merged entity would refrain from imposing unreasonable rate increases in the future. The executives responded that they could not provide such a guarantee.
Commissioner Jones expressed skepticism about whether the merger would really benefit consumers and asked tough questions about its impact. The antitrust law is clear that to permit a merger any efficiencies must directly benefit consumers and outweigh any competitive harm. In addition efficiencies have to be merger specific - that is they have to be due to the merger and cannot be achieved through any other less competitive means. The efficiency claims of Anthem failed on all counts. The executives of the merging companies were unable to provide a specific breakdown of the efficiencies, how the proposed savings would be achieved, and how they would help consumers, healthcare providers, and businesses.
Jones also asked why a merger was necessary at all. He observed that both companies already possessed large hospital and provider networks, and questioned whether the acquisition would really lead to greater quality improvements. He questioned whether there would be any efficiencies if the two networks were kept separate after the merger. Jones concluded by asking the company for additional information about the $2 billion in savings and how much of those funds would go toward consumers instead of stockholders.
Numerous consumer groups testified as well, including Consumer Watchdog, Consumers Union, and Health Access California. Antitrust lawyer David Balto testified on behalf of the Coalition to Protect Patient Choice, and made several excellent points. He stated that the increase in consolidation resulting from this merger would harm Californians’ pocketbooks by leading to higher premiums, that increased consolidation would harm the progress made by the Affordable Care Act, that the deal would have a large impact by creating California’s largest insurer and substantially harming competition, and that without competition any efficiencies resulting from the merger will not be passed on to consumers. He concluded that the harm to consumers could not be solved through remedies and urged the California Department of Insurance to recommend that the merger be blocked.
The California Department of Insurance’s hearing has set an excellent example for other states interesting in investigating the health insurance mergers and protecting their consumers. Commissioner Jones asked the necessary tough questions about the merger’s impact on consumers. Insurance Commissioners in other states should follow California’s lead and hold hearings regardless of whether they wish to assert jurisdiction over the merger.