Merger Cases Should Be Decided Based On Merit, Not Deals With Health Insurers

August 17, 2016

 

Senator Elizabeth Warren (D-MA) recently expressed concerns that Aetna’s reevaluating its involvement in public exchanges was related to the Department of Justice lawsuit against its proposed merger with Humana. And just yesterday, Aetna announced that next year it would no longer offer individual Affordable Care Act plans in eleven of the fifteen states that it has been participating in.

 

This is a clear sign that large insurers are losing money on the Affordable Care Act’s health exchanges, and raises concerns about the ACA’s long-term stability. If insurers keep losing money, more of them are likely to withdraw from the marketplaces, which would reduce choices for consumers and could contribute to higher premiums. And after this announcement, at least one county in Arizona (Pinal County) has no insurers slated to sell marketplace plans in 2017!

 

In a post dated August 11th, Senator Warren observed that Aetna had announced it would reevaluate its participation in the Affordable Care Act health exchanges, but at recently as April and May it had praised the exchanges and announced plans to expand its business to more states. Why the sudden change? She noted that since then DOJ filed suit to block Aetna’s proposed merger with Humana on the grounds that it would reduce competition and harm consumers by driving up costs. Warren wrote, “Aetna says this change of tone about the Affordable Care Act has nothing to do with the merger- but some analysts have suggested that Aetna might ‘use its future participation in the exchanges in bargaining over its purchase of Humana.’”

 

The Senator was not pleased with this. She wrote that Aetna could fight DOJ’s complaint in court, but “violating antitrust law is a legal question, not a political one. The health of the American people should not be used as bargaining chips to force the government to bend to one giant company’s will.” We agree; the Aetna-Humana merger case should be decided on the merits, not on the political clout of insurers.

 

Also, in an article a couple of weeks ago, former health insurance executive Wendell Potter wrote about what he called “Anthem’s and Aetna’s latest PR ploy to win approval of their plans to buy the companies I used to work for.” Anthem CEO Joseph Swedish said that his company’s acquisition of Cigna would help stabilize pricing in the Affordable Care Act market and allows Anthem to continue and expand its participation on the public exchanges. Essentially, he was saying that the future success of the exchanges depended on whether the merger with Cigna was approved. Anthem has also said that if its proposed merger with Cigna is approved, it will increase its exchange offerings to nine additional states.

 

Potter wrote that “you have to read between the lines here to understand what’s really going on” and that this statement was really a subtle threat that DOJ should back off and the mergers should be approved. He also noted that “studies of past deals have shown just the opposite, that insurers, newly bulked up after the completion of acquisitions, have pocketed any savings that presumably resulted. The beneficiaries of those deals were the insurers’ shareholders and executives, not their consumers.” This assessment is quite accurate; as we observed before, previous health insurance mergers haven’t helped consumers at all.

 

Finally, just today we received confirmation of this. Sources reported that in a July 5th letter to DOJ, Aetna CEO Mark Bertolini said that if the merger with Humana were blocked, Aetna could no longer sustain its losses on the exchange, and that it would greatly reduce its presence on the health exchanges, meaning it would no longer offer plans in many states. Bertolini said, “it is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked.” This sounds uncomfortably like an attempt to strike a quid pro quo deal with DOJ; you let the merger go through, and we will expand our presence on the health exchanges. Fortunately, Aetna's apparent attempt to extort a favorable outcome from DOJ was rightly rejected.

 

Competition matters—the evidence is overwhelming that competition in health insurance markets leads to increased choices, lower premiums for consumers, better quality, and increased innovation. Steps should be taken to promote competition on the exchanges so that consumers can benefit. Both health insurance merger cases should be decided based on the facts, and not because of any deals that are struck with companies.

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