DOJ Fights Mergers

by Dr. Merrill Matthews

Many health policy experts warned that the Affordable Care Act would lead to massive consolidation in the health care industry, including hospitals, physicians’ practices, and especially health insurers. Now the Justice Department is pushing back by opposing the mergers of four large health insurers—Aetna with Humana and Anthem with Cigna. The real question is whether the insurers will continue to sell in the exchanges if they aren’t allowed to merge?

The Obama administration says that the mergers would reduce competition. Attorney General Loretta Lynch explained, “If allowed to proceed, these mergers would fundamentally reshape the health insurance industry.” That’s rich, since nothing has reshaped the health insurance industry more than Obamacare—and by design.

But government antitrust litigation is almost always about politics rather than economics. And that’s why free market advocates tend to be skeptical of most government antitrust efforts; companies, not the government, are in the best position to judge whether a merger would be beneficial.

And politics is certainly at work in this instance. President Obama promised the country that his health care legislation would increase competition and lower health insurance premiums. Now that just the opposite is happening, his administration is trying to limit the fallout and appear to be fighting for the consumer. But blocking the mergers will likely hurt consumers and competition.

Health insures are fleeing the Obamacare exchanges because of financial losses. A recent McKinsey & Co. survey found that health insurers selling in the individual market—where individuals buy their own coverage, usually through Obamacare exchanges—lost $2.7 billion in 2014. Those loses only compounded in 2015. The Hill reports that Humana “is pulling out of Obamacare plans in all but a handful of states after a year of nearly $1 billion in losses.”

Aetna said it lost about $140 million on the individual market in 2015. The Texas Blues Cross parent company, which controls Blues plans in five states, lost a reported $2 billion—$720 million just in Texas.

Oscar, a start-up health insurer that was supposed to bring new thinking to the individual health insurance market lost $105 million on Obamacare exchanges in 2015—and that was in just two states, New York and New Jersey.

UnitedHealthcare, the largest health insurer, reported last January that it lost $720 million in 2015 selling individual health insurance on the Obamacare exchanges. And about $1 billion when 2014 and 2015 were combined. And 16 of the 23 nonprofit Obamacare co-ops—which were the left’s consolation price for not getting their “public option”—have gone under, with more collapses on the way.

The left has long wanted to “take the profits out of health care,” and Obamacare seems to be doing exactly that. Obama officials dismiss the health insurer losses, claiming that many of the insurers are still profitable. But that’s because health insurers often have several lines of business, some of which may be profitable even as they lose hundreds of millions of dollars selling in Obamacare exchanges. No responsible board of directors will let such losses continue indefinitely. Larry Levitt of the Kaiser Family Foundation has been quoted as saying, “Something has to give. Either insurers will drop out or insurers will raise premiums.” And that’s exactly what we’re seeing. Nationwide, there was a 12% decline in plans in 2016 as compared to 2015, and that includes a 40% decline in PPO plans. There will be even more exits in 2017. Prior to Obamacare there were 18 insurers offering individual coverage in Kansas. Today there are three. The Obama administration initially praised health insurance competition in Maricopa County, Arizona. This year there were eight plans available on the Obamacare exchange; next year there will only be four—unless Aetna drops out, too. And insurers that choose to remain are increasing premiums. Texas Blue Cross has requested an increase of up to 60% for its 2017 premiums, and Arizona Blue Cross requested a 65% increase.

We know Humana, without the merger, is pulling out. Aetna claimed for months it would remain in the Obamacare exchanges, but is now saying it may scale back. And Anthem announced recently that it will only expand into other exchanges if it’s Cigna merger goes through. In other words, the Obama administration’s efforts to keep four insurers from becoming two may mean that only one or none will continue selling on the Obamacare exchanges.

Expect to see even fewer insurers participating and higher premiums as financial losses increase, especially if the Obama administration continues its efforts to stop money-losing insurers from merging. Policyholders will likely be receiving the notice that their premiums are rising or policy is being canceled in September or October—just before the election.

Merrill Mathews is a resident scholar with he Institute for Policy Innovation at ipi.org.

Response to DOJ’s Move To Block Mergers

The Justice Dept. is suing to block two proposed mergers between major health insurance companies, saying the deals violate antitrust laws. The lawsuits argue that a $37 billion merger between Humana and Aetna would lead to higher health-insurance prices, reduced benefits, less innovation, and worse service for over a million Americans. The DOJ also says that the $54 billion acquisition of Cigna by Anthem would be the largest merger in the history of the health insurance industry. California insurance commissioner Dave Jones said, “I urged the DOJ to prevent these health insurance mergers, which would result in a highly concentrated, less competitive health insurance market doing irreparable harm to consumers and businesses. During the public hearings I convened, I questioned executives from Anthem, Cigna, Aetna and Humana. None of the companies were able to substantiate their claims of savings associated with the mergers. Not one company executive was willing to commit to pass along alleged cost savings to consumers through lower premiums. Bigger is not better when it comes to health insurance mergers. History has shown that health insurance mergers result in higher prices, fewer choices, and lower quality of care.”

Dr. Merrill Matthews of The Institute for Policy Innovation said, “The Obama administration is attempting to block the Aetna-Humana and Anthem-Cigna mergers because it wants more competition, but if compounding financial losses force these companies to drop out of the exchanges, there won’t be any competition. Two larger health insurers are better than none. Health insurance company mergers started shortly after the ACA passed in order to survive the new environment of high costs and government regulations…For example, Arizona’s Maricopa County was once praised as a center of robust competition with eight insurance companies competing in its ACA exchange. But in just a few years, that number will drop to only three insurers, two of which are Aetna and Cigna. If Washington stifles these same companies’ attempts to stay afloat in the exchanges, Maricopa County and other areas could see only a single insurer available in its marketplace—if any at all…If the Department of Justice’s stonewalling is successful, those insurers will likely join many others and pull out of the Obamacare exchanges, leaving even less competition and higher prices. And that will force the administration to devise even more excuses for why health care costs are exploding.”

Commissioner Urges DOJ to Block Anthem/Cigna Merger

CIGNA-AnthemMerger

California Insurance Commissioner Dave Jones is urging the Dept. of Justice to block the merger of Anthem and Cigna. The merger, which is estimated to be worth more than $50 billion, would make Anthem the nation’s largest health insurer. Anthem’s market share would exceed 50% in 28 California counties and 40% in 38 counties. Jones said that the merger would reduce access to quality care, and reduce health insurance affordability. Under California law, the commissioner does not have direct approval authority over the Anthem and Cigna merger since Cigna is domiciled in Connecticut.

At a public hearing on March 29, Anthem executives claimed that the merger would result in $2 billion in savings. But Jones said that Anthem provided only vague and speculative assertions when asked to back up that claim. At the hearing, Anthem would not commit to pass any savings onto consumers through lower prices.

Jones said, “More competition in California’s consolidated health insurance markets is needed, not less. Competition helps restrain prices, provides choice, and improves quality. The Anthem and Cigna merger reduces competition in a market that is already dominated by just four health insurers. It will likely result in reducing consumers’ choices, increased prices, and lower quality care,” he said. Jones provided the following statistics about California in 2014:

  • The four largest insurers controlled 85% of the market.
  • Four insurers controlled 82% of the large group market statewide.
  • Four insurers controlled 88% of the small group market.
  • Four insurers controlled 93% of the individual market.
  • In Covered California, the four largest plans controlled 95% of the individual market in 2014 and 91% of the market in 2015.

Competition Suffers Most If UnitedHealth Exits Obamacare In 2017

by Phil Galewitz of Kaiser Health News
If UnitedHealthcare follows through on its threat to quit the health insurance marketplaces in 2017, more than 1 million consumers would be left with a single health plan option, forecasted an analysis released Monday. A UnitedHealthcare pullout would be felt most in several states, generally in the South and Midwest, where consumers would be left with little choice of plans, the Kaiser Family Foundation said. In most of the 34 states where United operates this year, though, the effect would be modest for premiums and the number of plan options, Kaiser said. Kaiser’s analysis was made public a day before UnitedHealth Group, the insurer’s parent, is expected to announce 2017 plans for the ACA’s marketplaces that provide coverage to individuals who shop for their own health insurance.

Last year, UnitedHealthcare said it was losing hundreds of millions of dollars on the Obamacare plans and would decide its future participation by mid-2016. Health plans need to begin notifying states by May whether they plan to sell in marketplaces next year. More than one in four counties where UnitedHealthcare participates nationally would see a drop from two insurers to one if the company exits and isn’t replaced by a new entrant, and a similar number would go from having three insurers to two, the Kaiser analysis found. In total, 1.8 million enrollees would go from having a choice of three insurers to two, and another 1.1 million would go from having a choice of two insurers to one, the report said.

A UnitedHealth withdrawal would leave marketplace enrollees in Kansas and Oklahoma with only one insurer if another company does not move in, Kaiser said.

Its analysis cited the potential affect in other states if UnitedHealthcare drops out:

  • In Alabama, about two-thirds of enrollees — those living in 60 counties — would go from having a choice of two insurers to a single insurer, and the remaining 33% of enrollees in seven counties would have two insurers to pick from.
  • In Mississippi, 43% of enrollees in 50 counties would drop to just a single insurer and the remaining 57% in 32 counties would still have two.
  • In Arkansas, there would be a drop from four insurers to three insurers in every county if a new insurer did not replace the company.
  • In Georgia, nearly 50,000 marketplace enrollees, or 8% of the total, would be left with a choice of two insurers. Another 20,000 enrollees, or 3%, would have only one insurer if no new entrants replaced UnitedHealthcare.
  • Nationally, UnitedHealthcare’s participation on the exchanges had a relatively small effect on average premiums, based on Kaiser’s analysis of 2016 insurer premiums.

The company was less likely to offer one of the lowest-cost silver plans, where most enrollees sign up. When it did offer a low-cost option, its pricing was often close to its competitors. As a result, the weighted average premium for a benchmark silver-level plan would have been about 1% higher had United not participated in 2016. Federal subsidies in the marketplaces are based on the second-lowest silver premium. Benjamin Wakana, a spokesman for the Centers for Medicare & Medicaid Services, said the government expects insurers to make adjustments in entering and exiting states. The marketplace should be judged by the choices it offers consumers, not the decisions of any one issuer. That data shows that the future of the marketplace remains strong. UnitedHealth Group will release its first-quarter earnings Tuesday morning and CEO Stephen Hemsley is scheduled to discuss the results with analysts and investors at 8:45 a.m. ET. This story was produced by Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.

Groups Says that Divestitures Don’t Keep Medicare Advantage Competitive

Requiring companies to divest does not maintain competition amid health insurance mergers, according to an issue brief by the Center for American Progress. (Competition authorities frequently require merging parties to divest a number of brands or operations in order to clear a proposed merger.) The Center says that divestitures don’t restore competition with Medicare Advantage plans. Also, seniors pay higher premiums for divested plans. By 2015, acquiring partners exited more than half of the affected counties. Only two of the 15 divested plans are offered, and premiums increased an average of 44% for more than half of the divested plans. Researchers at the Center say that divestitures in the proposed Aetna-Humana merger won’t be successful in maintaining competition and protecting seniors. In fact, the proposed Aetna-Humana merger would greatly reduce market competition for Medicare Advantage beneficiaries. In markets where Medicare Advantage beneficiaries have a choice of insurers, Aetna’s average annual premiums were lowered by as much as $302 and Humana’s annual premiums were lowered by as much as $43. Under the merger, premiums could increase beyond these amounts because of the greater market power of the combined company.

Greater Insurer Competition Leads to More Satisfied Consumers

SatisfiedCustomer

Health plan members are most satisfied when there is more competition among health plans, according to a J.D. Power study. The study rated satisfaction on a 1,000-point scale. The study rates satisfaction as follows:

  • Cost: 610 in competitive markets versus 606 in markets dominated by a single plan.
  • Customer service:743 in competitive markets versus markets 740 dominated by a single plan.
  • Information and communication: 646 in competitive markets versus 641 in markets dominated by a single plan.

When one carrier controls more than 50% of the market, member satisfaction is significantly lower when it comes to communication and customer service. Greg Hoeg of J.D. Power said, “Carriers are shifting toward member satisfaction as they face more legal restrictions on profitability. Having a choice of providers boosts member satisfaction in markets with less competition. “Sometimes, having fewer, simpler plan choices makes it easier for the member,” says Hoeg.

The ACA’s medical-loss ratio has forced health insurers to focus on increasing their market share to compensate for slimmer margins. Carriers are paying particular attention to cost management. One way to do that is to combine with other carriers, says Hoeg. Traditional plans are merging to reduce costs and increase market power. Examples are the merger of blue plans, national deals like Aetna/Humana, and Anthem/Cigna, and major market-driven acquisitions for UnitedHealthcare/Optum. Many have speculated that Anthem’s proposed acquisition of Cigna will harm competition and consumers by reducing the ability of other health insurers to compete with Blue plans.

Member satisfaction averages 688 in 2016, up from 679 in 2015, and 669 in 2014. Driving increased satisfaction are coverage and benefits (+12 points), information and communication (+11), and customer service (+10). Nationwide, member satisfaction has improved nine index points in 2016 at 688. This follows a 10-point improvement in 2015. Member satisfaction with health plans reached a low in 2014, following the introduction of the health insurance marketplace as part of the Affordable Care Act (ACA).

Health plans with integrated delivery systems are poised for success as health insurance focuses more on member satisfaction. An integrated system includes a hospital organization, a multi-specialty medical care delivery system, the capability of contracting for any other needed services, and a payer. Integrated plans have an average satisfaction score of 746, which is 63 points higher than that of non-integrated plans.

There has been a slight decrease in members’ monthly premiums. On average, the monthly premium for a family plan is $355 in 2016, down from $374 in 2015 while individual plan premiums are $207, down from $216.

Satisfaction is highest among health plan members in California (707), Michigan (699), Mid-Atlantic states (698); Illinois-Indiana (697), and Northwest states (692). Satisfaction is lowest among members in the Southwest (661) and Minnesota–Wisconsin (666) regions.

PBMs Say They Increase Competition and Reduce Rx Costs

Testifying before the House Committee on Oversight and Government Reform, Pharmaceutical Care Management Association (PCMA) president and CEO Mark Merritt outlined ways to increase competition and lower prescription drug costs. The Committee is examining methods and reasoning behind recent drug price increases at a hearing titled, Developments in the Prescription Drug Market.

PBMs administer prescription drug plans for more than 266 million Americans who have health insurance from a variety of sponsors including: commercial health plans, self-insured employer plans, union plans, Medicare Part D plans, the Federal Employees Health Benefits Program, state government employee plans, managed Medicaid plans, and others.

PBMs are projected to save employers, unions, government programs, and consumers $654 billion—up to 30%—on drug benefit costs over the next decade according to new research. PBMs reduce drug costs by doing the following:

  • Negotiating rebates from drug manufacturers.
  • Negotiating discounts from drugstores.
  • Offering more affordable pharmacy channels.
  • Encouraging use of generics and more affordable brand medications.
  • Managing high-cost specialty medications.
  • Reducing waste and improving adherence.

Merritt said, “There is a growing use of bait-and-switch copay assistance marketing programs that encourage patients to ignore generics and start on more expensive brand drugs.” Unlike programs for the poor and uninsured, copay offset programs are designed to encourage insured patients to bypass less expensive drugs for higher cost branded drugs. Such practices are considered illegal kickbacks in federal programs and have long been under scrutiny by the Health and Human Services Office of Inspector General (OIG).

PCMA outlined several potential solutions for high drug prices that policymakers could consider, including:

  • Accelerating FDA approvals of “me-too” brands against drugs that face no competition.
  • Accelerating FDA approvals of generics to compete with off-patent brands that face no competition.
  • Creating a government watch list of all the off-patent brands so potential acquirers are aware that policymakers can monitor these situations.
  • Making copay coupons an illegal kickback for all insurance that gets any federal subsidy.

U.S. Life and Annuity Insurers Positioned To Address Shifting Tides in 2016

U.S. life and annuity insurers will enter 2016 in relatively good financial condition. Rapid advances in technology, rising customer expectations, and increasing competition will require insurers to reinvent their strategies, services, and processes, according a report by Ernst & Young. Global economic conditions, regulatory and monetary policies, and the political landscape are still concerns for the industry. Life and annuity insurers need to take decisive action to stay ahead of the curve. “After years of bolstering their balance sheets, life-annuity firms are in a strong position to invest in the innovations and technologies needed to fuel growth,” said Doug French, of Ernst & Young. According to the report, life-annuity insurers should focus on these six areas in 2016:

  1. Increase innovation: Insurers should create a culture of innovation, drive innovation through cross-functional teams, and share information openly across departments.
  2.  Reinvent products and services for the new digital customer: If insurers don’t respond to customer demands for greater digital access, better information, and quicker service, they will have a hard time attracting and retaining customers. Priorities in 2016 should include offering multi-device access for customers, providing clearer product information and pricing transparency, delivering more flexible solutions, improving customer engagement, and moving from focusing on products to serving as a trusted advisor.
  3. Adjust distribution strategies for technological and regulatory shifts: Life and annuity insurers may lose market share if they fail to adapt to a multi-channel world. Insurers should adapt services for new distribution models and explore the use of robo-advisors. Insurers need to prepare for new fiduciary standards, as the Dept. of Labor’s proposed fiduciary rule could upend existing distribution models in 2016.
  4. Drive efficiency and market growth: Insurers should determine whether their systems are ready for rapid market change. The assembly-line approach to policy quoting, issuance, and administration can slow application turnaround and detract from the customer and distributor experience. Companies also should ensure that their systems meet new regulatory standards. They should invest in next-generation processes and analytics, revamp IT systems built for simpler times, and consider partnerships to facilitate technology transformation.
  5. Hire the right talent: Insurers need to attract young, diverse workers to match emerging customer demographics and help drive innovation. Priorities for 2016 should include competing for the talent, offering more flexibility in work locations, finding creative ways to motivate and reward employees, and making diversity a priority.
  6. Place cybersecurity high on the corporate agenda: Leveraging social media, the cloud, and other digital technologies will expose life and annuity insurers to greater cyber risks in 2016. Companies will need to take a broad view of potential risks, such as cyber-attacks and reputation risks through social media. Insurers also should establish processes to monitor changing data regulations around the world since their data could reside in multiple jurisdictions and be subject to a variety of laws.

Competition Among Medicare’s Private Health Plans: Does It Really Exist?

Competition among private Medicare Advantage (MA) plans is seen by some as leading to lower premiums and expanded benefits. But how much competition exists in MA markets? The Commonwealth Fund finds that 97% of markets in U.S. counties are highly concentrated and therefore lacking in significant MA plan competition. Competition is considerably lower in rural counties than in urban ones. Even among the 100 counties with most Medicare beneficiaries, 81% don’t have competitive MA markets. Market power is concentrated among three nationwide insurance organizations in nearly two-thirds of those 100 counties.

Some say that fostering competition among private insurance plans offering Medicare coverage could control program spending and provide coverage that is more responsive to the needs of beneficiaries. Some suggest converting Medicare into a premium support program, in which beneficiaries get a fixed amount to buy coverage from a private Medicare plan or traditional Medicare. They say such a move would introduce even more competition, leading to even lower costs for Medicare.

But with consolidation among private payers is raising concerns about dwindling competition in many regional markets. Ninety-seven percent of the 2,933 counties that the Commonwealth Fund studied are highly concentrated markets. While the 100 counties with most Medicare beneficiaries are not geographically concentrated, just six major insurers dominate in terms of number of beneficiaries enrolled. Across these counties, UnitedHealth is the dominant firm, with the largest number of MA plan enrollees in 38 counties; Blue Cross affiliates, including WellPoint, have the largest MA enrollment in 13 counties.

According to the Commonwealth Fund, the results indicate that policymakers should give careful thought to proposals that would rely on competition among plans to reduce cost growth and improve quality. Under a premium-support system, for example, local payment amounts would be heavily influenced by the bids submitted by a small number of health insurance firms in each local market; many of these firms have substantial market power nationwide, as well.

UnitedHealth and Anthem Look to Purchase Smaller Carriers

 

UnitedHealth and Anthem Look to Purchase Smaller Carriers


TheStreet.com reports that UnitedHealth, Anthem, Aetna, Humana, and Cigna are involved in a buzz of merger and acquisition activity, as the health insurance industry is responding to the aftershocks of the Affordable Care Act.

Fitch Ratings reports that a combination of any of the five largest U.S. health insurers could accelerate further merger and acquisition activity in the managed care sector. Just one mega M&A deal could lead to similar responses by competing firms seeking to shore up competitive disadvantages in scale and product lines. Fitch sees the M&A potential in the health insurance sector as a direct response to anticipated market conditions in a post-Affordable Care Act (ACA) world. Rumors of health insurance M&A activity among the five largest publicly traded health insurers in the U.S. have accelerated in recent weeks.

Fitch says that the ACA, would add to health insurers’ membership volumes, but reduce member margins. This margin pressure would be exacerbated by the government’s challenging fiscal condition, employers’ on-going desire to reduce health care costs, and a heightened need to invest heavily in technology.

As a result, Fitch believes that size and scale are quite important to health insurers’ competitive positions and financial results. In addition, the importance of product line (i.e. individual, group, Medicare, Medicaid) diversification will increase in response to the government’s increasing role in the market, the aging U.S. population and employers’ desires to reduce health care costs

Last Updated 12/01/2021

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