Employers Remain Wary of Mergers, Concerned About Higher Costs

June 2, 2016

 

Consumer advocates, healthcare providers and hospitals, legislators, and antitrust regulators have all criticized the proposed mergers of Anthem and Cigna and Aetna and Humana. They have expressed skepticism that the deals will really lead to lower healthcare costs, or that those benefits would reach consumers instead of being used to generate greater profits. Now, large employers, who will be greatly impacted by the mergers, are also voicing concerns that reduced competition resulting from these combinations could lead to higher healthcare costs.

 

Many employers are self-insured, meaning that they pay for their employees’ medical care but insurers handle the provider networks, process the claims, and manage care.  The contracts between self-insured employers and insurance companies are usually called administrative-services-only, or ASO. Anthem’s $53 billion acquisition of Cigna will greatly impact these markets, because both companies have extensive dealing with large employers. Aetna’s $37 billion acquisition of Humana will have less of an impact.

 

In several surveys, CEOs of Fortune 500 companies and other big employers have expressed concerns that the health insurance mergers will lead to reduced competition, which means they will have to pay higher health care costs. For example, 95% of employer members of the Midwest Business Group on Health viewed the loss of competition resulting from the mergers negatively. Two investment banks also surveyed high-ranking health benefits executives at self-insured companies. They found that many of them thought the post-merger companies would not offer enough competition for their businesses, and that post-merger, Anthem would “be able to raise ASO fees in an anti-competitive fashion.” Purchasers of health insurance for their employers will have fewer options if these deals go forward. Other specific concerns include the possibility of worse customer service resulting from the mergers, and strong doubts that the mergers would benefit consumers and employers.

 

Both the Midwest Business Group on Health and the Pacific Business Group on Health are worried about these mergers, and stated that they are being squeezed by the flurry of mergers and acquisitions in the health care industry. They are right to worry; increased consolidation results in reduced competition and higher costs, and that will almost certainly be the result in this case. Since federal and state antitrust regulators are now reviewing the mergers and encouraging public comments, employers should make their concerns known. These acquisitions will cause significant harm to them and their employees.

 

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