California Insurance Commissioner Dave Jones Urges Department of Justice to Reject Anthem-Cigna Merger

June 17, 2016

 

Yesterday California Insurance Commissioner Dave Jones announced that he opposes the proposed merger of health insurance companies Anthem and Cigna, and urged the Department of Justice to block the merger on the grounds that it was anticompetitive and would harm consumers. In a twenty-two page letter, he states that the merger “will harm Californians, California’s businesses, and our health insurance market” by leading to increased premiums, decreased quality of care, and reduced access to crucially needed insurance products.

 

This recommendation is a sharp blow for this merger. California’s health insurance market is the largest in the nation. Health insurers and managed care plans collect $122.9 billion in annual premiums from Californians, and Commissioner Jones’s opinion will likely have a substantial impact on other Insurance Commissioners, State Attorneys General, and the DOJ. This announcement comes after a lengthy investigation of the merger and a public hearing on March 29th, during which consumer advocates, healthcare providers, and concerned citizens offered testimony and submitted written comments.

 

In many areas, the letter is scathing. Commissioner Jones pointed out that Anthem is seeking approval of this merger while it has a history of implementing substantial and unreasonable rate increases. He noted that “Anthem and Cigna have not proffered any credible evidence that the merger will reduce premiums. While they claim the merger will create operating efficiencies, their claims are vague, speculative, impossible to verify, and defy logic.” During the March 29th hearing, company executives were unable or unwilling to provide details on how the merger would lead to greater efficiencies or help consumers. Moreover, Jones stated that Anthem also has a history of providing poor quality care to its California members and of committing numerous consumer protection violations. From 2013-2015, the Insurance Department found over 5,500 alleged violations of state law by Anthe, from denial of care to misrepresentations of facts and policy provisions to failure to conduct business under the insurer’s own name.

 

The Coalition to Protect Patient Choice argued that the Anthem-Cigna merger was anticompetitive, and Jones agreed. He wrote that “it is more than reasonably probable that it [the merger] will substantially lessen competition based on the factors recited in the DOJ and FTC Horizontal Merger Guidelines…Specifically, the enhanced market power of the merged companies will permit them to increase premiums, decrease the quality of care provided to their California members in a number of the state’s regions, and reduce access to critically needed insurance products. In addition, the merger will likely result in coordinated actions among them and other California health insurers, generating the same effects. Finally, the merger would increase the monopsony power of the combined entities in purchasing the services of healthcare providers, thus likely decreasing the quality of services and increasing the price of health insurance.”

 

The letter ended with a powerful conclusion stating that “the Anthem and Cigna merger will harm Californians, California’s businesses, and our health insurance market.” The Commissioner further said that he did not believe divestitures or any other proposed remedies would adequately protect consumers or restore competition, and that “traditional methods to avoid concentration issues will not address poor service qualities, the power to charge excessive rates   or the loss of a potential market participant that has the resources to enter into new markets.” This proposed merger is too big to fix, and DOJ should reject it outright.

 

A few weeks ago the Missouri Department of Insurance already rejected the Aetna-Humana merger, and now the California Department of Insurance opposes the Anthem-Cigna merger. Both decisions are comprehensive and fact-based. Other State Insurance Commissioners should follow their lead, and the Department of Justice should take note of how the merging companies have been unable to effectively respond to these criticisms.

 

 

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