Health IT, Payers

Anthem-Cigna merger plan draws strong reactions from many sources

Last week's news that mega-health insurer Anthem has agreed to acquire fellow mega-health insurer Cigna for $48.4 billion has created quite a stir, especially since two more giants, Aetna and Humana had announced just three weeks earlier that they would merge for $37 billion.

Last week’s news that mega-health insurer Anthem has agreed to acquire fellow mega-health insurer Cigna for $48.4 billion has created quite a stir, especially since two more giants, Aetna and Humana, had announced just three weeks earlier that they would merge for $37 billion.

Most of the initial response has been negative. For one thing, Anthem and Cigna both took a bath on Wall Street. According to Forbes.com’s Dan Diamond, the two companies lost a combined total of $3.3 billion in market capitalization Friday. The stocks have stabilized Monday, making marginal gains by midday, but they are still down sharply from pre-announcement levels.

Bloomberg went farther, actually posing the obvious question about antitrust issues to antitrust experts, given that the two proposed mergers would leave just three major private payers nationwide rather than the current five.

“You’d have a massive reshuffling and increased concentration,” Diana Moss, president of the American Antitrust Institute, said in an interview with Bloomberg. “It’s more bottlenecking of the health-care supply chain, which we worry about already.”

Assistant Attorney General Bill Baer, who runs the antitrust division at the U.S. Department of Justice, also had some ominous words, according to Bloomberg. “A trend toward consolidation in the healthcare insurance market is something we need to factor in” [during DOJ’s] review of recently announced mergers, Baer reportedly said earlier this month, before the rumored Anthem-Cigna deal became official.

Providers, predictably, hate this trend. The American Medical Association (unofficial motto: “Ruthlessly Defending the Status Quo Since 1847”) issued a scathing statement, attributed to President Dr. Steven Stack:

The American Medical Association believes patients are better served in a health care system that promotes competition and choice. We have long cautioned about the negative consequences of large health insurers pursuing merger strategies to assume dominant positions in local markets. Recently proposed mergers threaten to increase health insurer concentration, reduce competition and decrease choice.

The AMA’s own study shows that there has been a serious decline in competition among health insurers with nearly 3 out of 4 metropolitan areas rated as ‘highly concentrated’ according to federal guidelines used to assess market competition. In fact, 41 percent of metropolitan areas had a single health insurer with a commercial market share of 50 percent or more.

Further AMA analysis shows that based on federal guidelines, the proposed Anthem-Cigna merger would be presumed to be anticompetitive in the commercial, combined (HMO+PPO+POS) markets in nine of the 14 states (NH, ME, IN, CT, VA, CO, GA, NV, KY) in which Anthem is licensed to provide coverage.

The lack of a competitive health insurance market allows the few remaining companies to exploit their market power, dictate premium increases and pursue corporate policies that are contrary to patient interests. Health insurers have been unable to demonstrate that mergers create efficiency and lower health insurance premiums. An AMA study of the 2008 merger involving UnitedHealth Group and Sierra Health Services found that premiums increased after the merger by almost 14 percent relative to a control group.

To give commercial health insurers virtually unlimited power to exert control over an issue as significant and sensitive as patient health care is bad for patients and not good for the nation’s health care system. The U.S. Department of Justice has recognized that patient interests can be harmed when a big insurer has a stranglehold on a local market.

“Given the troubling trends in the health insurance market, the AMA believes federal and state regulators must take a hard look at proposed health insurer mergers. Antitrust laws that prohibit harmful mergers must be enforced and anticompetitive conduct by insurers must be stopped.

American Hospital Association President Richard Umbdenstock was more concise, but equally alarmed:

We have another seismic shift in the health care landscape with the announcement today that Anthem will purchase Cigna, just weeks after Aetna announced it will buy Humana. Such enormous compression in an already over-consolidated industry is a red flag for regulators. How can these mega-insurers possibly benefit consumers? And will these insurers be willing to partner with hospitals that are building a continuum of care to meet consumer needs? The AHA intends to work closely with other stakeholders and DOJ’s Antitrust Division, the Congress, other government agencies as they take a close look at these worrisome deals.

Another Forbes contributor, friend of MedCity News Bruce Japsen, noted that the Blue Cross and Blue Shield Association likely “hates” the Anthem-Cigna deal. The 36 non-Anthem Blues licensees would suddenly find themselves in direct competition against the nation’s largest single Blues company.

So who does like the proposed mergers? The IT industry would get a boost in the short term as Anthem and Cigna combine and Aetna and Humana pull together their operations, according to Health Data Management.

And, surprisingly, some liberal interests are supportive to a degree. “Generally speaking, we liberals would prefer a system in which there was only one insurer: the federal government. There are various reasons for this, but one of them is that a single nationwide insurer would have enormous pricing power,” Kevin Drum wrote for Mother Jones. “Medical costs are overwhelmingly set by providers, not by insurers, and the more leverage insurers have, the lower prices are for consumers.”

Drum said it would be worse if there were this much consolidation among providers, though there already has been in some markets.

Photo: David McNew/Getty Images

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