Commissioner Dave Jones Asks Merging Companies Tough Questions, and Receives Mostly Silence

April 28, 2016

 

California Insurance Commissioner Dave Jones asked tough questions of the merging health insurance companies Aetna and Humana during yesterday’s hearing, and the representatives were unable to adequately answer them.

 

The hearing examining the proposed Aetna-Humana health insurance mergers began at 9:00 AM Pacific Time on April 27th, in Sacramento. During the three-hour-long process, Commissioner Jones repeatedly pressed the company representatives for concrete evidence that the merger would lead to efficiencies, that it would not reduce competition, and that savings would be passed along to consumers in the form of lower premiums. He received inadequate or nonexistent answers.

 

The representatives of Aetna and Humana testified first, stating that both companies were committed to diversity and corporate social responsibility, and that this transaction would genuinely benefit Californians and the country at large. They further claimed that Aetna and Humana had a proud history of innovation, quality, and consumer engagement. According to them the merger would lead to $1.25 billion in savings. They concluded that the transaction would promote value-based care, bring together two excellent companies, and help to complement and accelerate their respective efforts to improve health care.

 

Commissioner Dave Jones was skeptical, and asked insightful questions about the merger, how the proposed savings would be achieved, and its impact on consumers and health insurance markets. He cited a study showing that the merger would significantly reduce Medicare Advantage competition in eight of the state’s most populous counties, and asked for their response.

 

The representatives seemed flustered and responded that they had not seen that study, but they thought the Medicare market in California was very dynamic and competition would not be harmed by the merger. Jones stated that the study was very important, and asked that they review it and return with more information. He also requested that Aetna provide the Department with a Form E analysis, and they agreed to that condition.

Next, Jones asked them where the $1.25 billion savings that would supposedly result from the merger would come from, and how they would be obtained. The representatives claimed the savings would come from eliminating redundancies and improve network arrangements, but didn’t provide many specifics. Jones asked them to provide more detail later, and said, “Can policyholders expect to see a $1.25 billion reduction in their premiums?” The answer was no, but some of the savings would be passed on to consumers, by filling in gaps in health care and reducing disparities.

 

After this exchange Jones pressed further: did the companies have any estimate on what part of the savings will be used to reduce to premiums? The representatives responded that no, they had not done that. Jones: is there any guarantee that some of these savings will result in lower premiums for consumers? Again, the companies said they were committed to returning significant savings to consumers, but they have not quantified that.  Jones asked whether Aetna was offering that commitment as a condition for the merger with regard to seeking federal or state approval? The Aetna representative responded that no, they were not offering that as a commitment.

 

Finally, Jones asked why Aetna had not made additional investments in California to expand its market share, and whether there were significant barriers to entry. Aetna admitted that California had been a challenging market for them to grow in, but they were hopeful the situation would change. Jones asked if that meant it is difficult for new companies to enter the insurance market? The representative responded no, but it was difficult to maintain growth.

 

The consumer groups Health Access California, Consumers Union, and Cal PIRG all testified. Dena Mendelsohn of Consumers Union stated that the merger would harm consumers by leading to higher premiums and lower quality products. She also cited antitrust attorney David Balto’s point that courts have rejected the efficiency argument for justifying mergers, and pointed out the Aetna has been found guilty of numerous consumer protections violations and has implemented unreasonable rate increases. Health Access California and Cal PIRG stressed similar points, and added that if regulators did approve the merger, they should require tough, enforceable conditions to protect consumers.

 

The California Medical Association also testified against the acquisition and cited a survey of their members showing that the vast majority of them opposed the merger.

 

Commissioner Jones ended the hearing by thanking everyone, and said his goal was to go through the comments, determine whether the merger was in the interests of consumers, and share that conclusion with national and state regulators. Additional comments are welcomed, and should be sent to mergercomments@insurance.ca.gov.

Please reload

Featured Posts

United States-Mexico-Canada Agreement (USMCA)

October 5, 2018

1/4
Please reload

Recent Posts
Please reload

Archive
Please reload

Search By Tags
Please reload

Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square