Last week, the Missouri Department of Insurance held a hearing on the proposed merger of Aetna and Humana. The hearing was not widely noticed, but it could not be more timely or important – the proposed merger threatens to raise premiums of over 300,000 older Missourians who depend on Medicare Advantage. History demonstrates a simple and compelling truth – when insurers merge premiums go up.
Faced with this daunting truth, the merging companies presented the best economists money can buy to muddy the issue and bring confusion to simplicity. But as John Adams once said “facts are stubborn things” and the simple facts are that the Aetna-Humana merger will eliminate competition and increase consumer costs.
The evidence is overwhelming: health insurance mergers lead to higher premiums and costs. After the Aetna Prudential merger in 1999 premiums went up 7-12%. A study of a major merger in Nevada found similar results. No study – not a single one—has found that consumers benefit from health insurance mergers.
Competition matters a lot in health insurance, especially in the Medicare Advantage (MA) markets. A comprehensive study by the Commonwealth Fund last year found that there was a clear relationship between the level of concentration – how many choices consumers had – and premiums. A similar report by the Center for American Progress (CAP) looking specifically at competition between Aetna and Humana found that premiums are lower in markets where the two companies compete.
The MA market in Missouri is already highly concentrated with Aetna, Humana and UnitedHealth accounting for approximately 83 percent statewide. The combination of Aetna and Humana would make it the king of the castle with over a 90 percent market share in eight counties, 80 percent in 19 counties, and 70 percent in 11 counties.
Today, competition between the two insurers lowers Aetna’s annual premiums by up to $302 and Humana’s annual premiums by $43. This merger would eliminate that competition and drive up consumer costs.
Moreover, Aetna has recently been expanding its MA business and competing more directly on MA products in Humana markets. The CAP report found that number of counties where the two companies overlap increased from 82 to 562 in just the past three years.
In Missouri, Aetna and Humana already compete for MA in approximately 67 counties. The merger would destroy that existing competition and eliminate substantial future competition as well. You don’t need a PhD in economics to understand that extinguishing competition would hit consumers hard in their pocketbooks.
And the “don’t look behind the curtain” effort of Aetna’s high paid hired guns can’t change these basic facts. President Truman may have wanted a one-armed economist, but consumers deserve one who knows the antitrust laws are meant to protect consumers, not competitors. Aetna’s hired guns say that, even though the mergers will give Aetna over a 50% share of the MA market, there is no risk of higher prices because consumers can always switch to traditional Medicare. That’s like saying Starbucks cannot increase prices because Instant Postum is an alternative. They are both coffee but Postum isn’t going to restrain Starbucks – the two aren’t genuine alternatives.
The Justice Department has already found that MA is a distinct market from traditional Medicare. This is confirmed by multiple independent studies that focus on the richer benefit package of MA and the fact that, when MA plans expire, consumers switch to other MA plans and not to traditional Medicare because they like these additional benefits.
The hard facts are that if this merger is approved Aetna will become the dominant MA provider in the state and consumers will pay dearly in increased premiums and weakened service. That’s why the Department of Insurance should just say no and block this merger.