Effect of Health Insurance Merger Concerns Local Consumer Advocates

St. Louis Post-Dispatch, July 11, 2015

A proposed merger between two health insurance giants is drawing concerns around the country and in Missouri, as some fear the consolidation could leave older adults in the state with fewer choices for health care.

Earlier this month, Aetna Inc. announced it would acquire Humana Inc. for about $37 billion, a combination that would produce the nation’s second-largest health insurer, just behind UnitedHealth Group Inc.

Spurred on by the new health care environment generated by the Affordable Care Act, the nation’s big health insurers are looking to bulk up, hoping to use their leverage to negotiate lower prices from providers and drug companies.

But the Aetna deal, which would produce a company with more than 33 million customers, is getting the attention of regulators and consumer groups because in some markets, the two companies already are major players. A combination could leave consumers with too few choices, critics say. The deal requires approval from the U.S. Department of Justice, as well as state insurance regulators.

At least three state attorneys general — in Florida, Mississippi and Massachusetts — said they would look at the proposed acquisition. Local politicians and medical industry groups such as the American Medical Association have also voiced concerns about the biggest deal ever in the U.S. health insurance industry.

Missouri is one of the markets where the combination is raising concerns. Both Aetna and Humana have a significant presence when it comes to Medicare Advantage, a government-sponsored program for older adults where a private company manages benefits.

Together, they have 51 percent of the Medicare Advantage market in Missouri, according to data from Kaiser Family Foundation.

Should they combine, most older Missourians would have only two choices when selecting a health care plan. UnitedHealth is the only other major player currently operating in the state’s Medicare Advantage market.

“It’s really terrible from a consumer’s point of view,” said Dr. Ed Weisbart, a family physician and vice president of the Consumers Council of Missouri. “We could end up with one company telling us which hospitals we can go to and which doctors we can go to.”

Aetna and Humana have downplayed the antitrust concerns, arguing their merger would benefit consumers through streamlined care coordination. Spokesman for the two companies referred comment to previous statements made by their executives.

In an interview with CNBC the chief executives for Aetna and Humana said they did not think the issue would prevent their deal from being approved.

“Given the legal advice, we believe this is a very manageable transaction,” said Aetna CEO Mark Bertolini. “We believe it transforms health care.”

Humana CEO Bruce Broussard added that there was little chance of consumer harm in the deal, pointing to regulations in the Affordable Care Act that require insurers to spend the vast majority of money from premiums on medical bills.

In Missouri, the two companies have little overlap in the state’s insurance market for individual consumers and for employer-sponsored coverage. But the Medicare Advantage market is one of the fastest-growing, and will become more consequential as baby boomers age into the program.

Under Medicare Advantage, a private company manages hospital care and doctor’s visits for beneficiaries. They also can include prescription drug coverage. The plans must cover all of the benefits of traditional Medicare, but can go above and beyond. As a result, they can charge higher premiums to recipients, as well as set provider networks and determine which prescription drugs to cover.

Weisbart said less competition could allow companies, without recourse, to narrow consumer options to save money.

“Their interests are in line with making decisions that optimize profit and are not aligned with optimizing public health,” he said.

Tim McBride, a health economist at Washington University, said he started to worry as the number of players in a market dwindled close to one.

“In general, the more market power firms have the higher the prices are for products,” he said.

But McBride added that consumers might be protected because Medicare Advantage is an optional program. If they find prices too high, or choices too narrow, they can always opt for traditional Medicare coverage.

Nationally, Medicare Advantage has about 17 million enrollees, which is about one-third of the program’s total population. It has more than tripled in size during the last decade and is expected to grow even more. Missouri has roughly 318,000 residents in Medicare Advantage plans, according to the most recent federal data.

It’s also been a major, and growing, source of revenue for companies. An increased Medicare Advantage presence was cited by Clayton-based Centene Corp. in its recent purchase of California-based Health Net. And the 4.4 million Medicare members in the combined Aetna-Humana company would make up nearly half of the revenue of the new firm.

When asked about the proposed merger between Aetna and Humana, the state insurance department declined comment other than to refer to several statutes that dictate what the department should consider before signing off on a deal.

Approval of the merger could become more complicated on both the state and federal level if other health insurers start to consolidate. Anthem, currently the nation’s second-largest insurer, is making a bid for Cigna, the fifth-largest. And UnitedHealth, the largest, could make a bid for Aetna or some of the other companies. Should multiple mergers take place, regulators would need to weigh the combined effects on the market.

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