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.

Insurance Commissioner’s Statement on Centene’s Acquisition of Health Net

California Insurance Commissioner Dave Jones issued a statement on Centene’s acquisition of Health Net. The following is a summary of his comments:

This transaction provides an opportunity to bring new capital and resources from a major national health insurer largely outside of California (Centene) to enable a California health insurer (Health Net) to continue to compete and offer consumers additional choices in California’s individual, small group, and large group commercial health insurance market. The conditions for my approval of this merger include the following:

  • Merger costs will not be imposed on California policyholders.
  • Health Net will maintain and grow its commercial line of business. There are growth commitments and investment requirements to ensure that Centene continues to invest substantially in Health Net Life and that both companies seek to expand Health Net Life’s present competitiveness in California’s individual, small group and large group health insurance markets.
  • Health Net Life will continue to offer products through Covered California.
  • Centene and Health Net must provide sufficient networks of medical providers and timely access to medical providers and hospitals.
  • Centene and Health Net must improve the quality of care delivered through their health insurance.
  • Health insurance rates will be developed using the same methodologies used before the merger, but with an agreement that rate increases will be kept to a minimum.
  • An adequate distribution channel for Health Net health insurance must be maintained.
  • Senior management for Health Net’s California operations must remain in California and restrictions are placed on Centene’s ability to re-domesticate or move Health Net out of state.
  • Centene will invest further in California by making a $200 million infrastructure investment by establishing a California call center, bringing new jobs to California.
  • Centene and Health Net will invest an additional $30 million in California’s low and moderate income

Health Net has had declining market share and covered lives in its commercial health insurance business. The merger with Centene gives Health Net access to the capital and resources to compete in a California market that’s dominated by three much larger health insurers (Kaiser, Anthem Blue Cross of California, and Blue Shield of California) and several other national health insurers (United Health Care, Aetna, Cigna).

Groups Says California Should Reject the Anthem-Cigna Merger

Consumer Watchdog called on Insurance Commissioner Dave Jones to reject a proposed merger of Anthem and Cigna. Carmen Balber with Consumer Watchdog said, “Insurance industry consolidation has gone too far in California, costing consumers in the form of higher prices, reduced benefits, narrower networks, and fewer choices. It is no longer believable to claim that making the few insurance giants larger could benefit consumers. It’s time to draw a line in the sand. The only action that truly protects California policyholders is for the Dept. of Insurance to reject the Anthem-Cigna deal.” Nine metro areas in California will be among the hardest-hit in the nation if the merger is approved, and nearly every major population center in the state could be affected, according to an American Medical Association analysis using federal merger guidelines,” she said.

The following is a summary of a statement prepared by Consumer Watchdog: If the Anthem-Cigna merger proceeds, Anthem will gain a near-monopoly in the self-insured market at 69% of the market, meaning higher costs and less options for large companies that pay Anthem or Cigna to administer their health plans and employ nearly 4 million Californians. A merged Anthem-Cigna would surpass Kaiser to become the largest insurer in the state. Regulators cannot exact enough concessions from the companies to protect consumers from the negative impacts of an Anthem-Cigna merger.

Consumer Watchdog recommends these conditions for approving the merger:

  • Anthem should commit to not implementing rate hikes that regulators find to be unreasonable.
  • Anthem should be prohibited from upstreaming profits to its parent company while increasing premiums.
  • Anthem should have to disclose details of any administrative services payments to its parent company out of state. This would allow the public to determine whether the payments have been inflated to hide upstreaming of California policyholder money to shareholders.
  • Anthem should not be allowed to remove reserves from California or otherwise require California policyholders to pay for severance, retention, or other compensation packages for executives in connection with the merger.
  • Anthem should immediately submit its provider networks for review.
  • Anthem should commit to expanding network size for all plans that give consumers access to less than 50% of providers in the area.
  • Anthem’s filings with the Dept. of Insurance should be public documents. Grants of confidentiality should only be allowed sparingly, with explanation of the sensitive nature of the withheld documents, if at all.
  • Anthem should be subject to steep penalties for violating any provision of these undertakings, and revocation of approval if there is a pattern of violations.

Centene Completes Acquisition Of Health Net

Centene Corp. completed its acquisition of Health Net. Health Net is now a wholly owned subsidiary of Centene and is no longer a publicly traded company. Michael Neidorff, CEO of Centene said, “We are now the largest Medicaid managed care organization in the country. Centene expanded its government program offerings to include Medicare Advantage, as well as those offered through contracts with the Depts. of Defense and Veterans Affairs. Neidorff said, “The acquisition increases our scale across health insurance marketplaces while maintaining Health Net’s presence in the California commercial market.” He said that Centene also benefits from greater scale and a stronger financial profile.

California Insurance Commissioner Dave Jones said, “After thorough review…I concluded that this transaction provides an opportunity to bring new capital and resources from a major national health insurer largely outside of California to enable a California health insurer to continue to compete and offer consumers additional choices in California’s individual, small group, and large group commercial health insurance market.”

The following are conditions for the commissioner’s approval of the merger:

  1. Merger costs will not be imposed on California policyholders.
  2. Health Net will maintain and grow its commercial line of business in the small group and large group health insurance markets.
  3. Health Net Life will continue to offer products through Covered California.
  4. Centene and Health Net Life must provide sufficient networks of medical providers and timely access to medical providers and hospitals.
  5. Centene and Health Net Life must improve the quality of care delivered through their health insurance.
  6. An adequate distribution channel for Health Net health insurance must be maintained.
  7. Senior management for Health Net’s California operations must remain in California. Restrictions are placed on Centene’s ability to move Health Net Life out of state.
  8. Centene will make a $200 million infrastructure investment by establishing a California call center.
  9. Centene and Health Net will invest an additional $30 million in California’s low- and moderate-income neighborhoods, with investments prioritized for health facilities.

Jones said, “There are many reasons to be skeptical about health insurance mergers…Studies show that health insurance prices increased after mergers. This merger and the condition of the companies involved, however, present circumstances which led me to conclude that, with strong and comprehensive conditions, this merger was in the best interest of Californians.

Jones added, “Health Net Life Insurance, despite its name, is a health insurance company. Health Net Life has had declining market share and declines in covered lives in its commercial health insurance business. The merger with Centene provides Health Net Life with access to additional capital and resources to…compete successfully in a California market dominated by three much larger health insurers (Kaiser, Anthem Blue Cross of California, and Blue Shield of California) and several other national health insurers (United Health Care, Aetna, CIGNA).”

State Finalizes Medical Provider Network Rules

The California Dept. of  Insurance has issued final regulations that include requirements for health insurers to create and maintain adequate medical provider networks. “These regulations go into effect immediately because they address a number of critical problems consumers have faced with insurers when seeking timely access to care,” says Insurance Commissioner Dave Jones. He had issued temporary emergency regulations, which have been in effect since late January 2015. The regulations require health insurers to do the following:

  • Include enough numbers and types of providers in the network to deliver covered services.
  • Adequately provide for the treatment of mental health and substance use disorders.
  • Include an adequate number of primary care providers and specialists with admitting and practice privileges at network hospitals.
  • Monitor and adhere to new appointment wait time standards.
  • Regularly report information about the networks and changes to the networks to the Dept. of Insurance for review.
  • Maintain accurate provider network directories available to the public and update them weekly.
  • Arrange out-of-network care at in-network prices when there are insufficient in-network care providers.

Multi-Million Dollar Death Master Settlements Reached

Insurance Commissioner Dave Jones announced multi-million dollar settlement agreements with Jackson National and Axa related to the Social Security Administration’s Death Master File database. Created by the Social Security Administration, the database provides insurers with the names of deceased people with Social Security numbers. Until recently, most insurers only used the database to identify deceased annuity holders in order to stop making annuity payments, not to identify deceased policyholders in order to pay life insurance benefits

To date, 22 life insurers have agreed to reforms in using the Death Master database to search for deceased policyholders and make payments to their beneficiaries. Now, life insurers representing over 73% of the market have agreed to reform their practices and search for deceased policyholders in order to pay benefits to their beneficiaries. Under the settlement, Jackson National will pay $2.5 million and Axa $3.28 million to the states participating in the national investigation. Insurers agreed to reform their business practices and use the database to search for policyholder beneficiaries that might be owed benefits from a life insurance policy.

A national investigation by state insurance commissioners led to life insurers returning more than $1 billion to beneficiaries nationwide. In addition to the investigation, the National Association of Insurance Commissioners is drafting a model law that would require all life insurers to use the Death Master File database to identify deceased policyholders in order to facilitate payment of benefits to their beneficiaries. Jackson National and Axa have agreed to compare all company records against the Death Master database to determine whether there are unclaimed death benefits and conduct a thorough search for beneficiaries to whom unclaimed benefits may be owed.

Reactions to Anthem/Cigna Merger

Anthem and Cigna have entered into a definitive agreement whereby Anthem will acquire all outstanding shares of Cigna in a cash and stock transaction. The Anthem board of directors will be expanded to 14 members. David Cordani and four independent directors from Cigna’s current board of directors will join the nine

Joseph Swedish, president and CEO of Anthem said, “The Cigna team has built a set of capabilities that greatly complement our own offerings and the combined company will have a competitive presence across commercial, government, international and specialty segments. “The complementary nature of our businesses will allow us to leverage the deep global health care knowledge, local market talent, and expertise of both organizations to ensure that consumers have access to affordable and personalized solutions across diverse life and health stages and position us for sustained success,” said David M. Cordani, president and CEO of Cigna. The transaction is expected to close in the second half of 2016, pending state regulatory approvals.  Anthem is confident in its ability to obtain all necessary regulatory and other approvals.

Insurance Commissioner Dave Jones said, “California’s health insurance market already suffers from consolidation with the four largest health insurers in the individual market controlling more than 85% of the market. Further consolidation will result in even less competition among health insurers and will leave consumers and employers with fewer choices and the potential for greater premium increases. Studies of prior mergers of health insurers found that health insurance prices increased as a result of mergers. “Health insurers are enjoying record share values and profits, which are paid for by consumers and employers. There is no requirement that any savings from these mergers be passed along to consumers or employers. In California, there is no authority to reject excessive health insurance rate increases, unlike 35 other states. We will review the mergers based on what is best for California consumers and employers. We will also work closely with other state and federal regulators,” he added.

Steven Stack, MD, president of the American Medical Association said, “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…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. Federal and state regulators must take a hard look at proposed health insurer mergers. Antitrust laws that prohibit harmful mergers must be enforced and anti-competitive conduct by insurers must be stopped.” “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,” he added.

An AMA study of the 2008 merger involving UnitedHealth Group and Sierra Health Services found that premiums increased after the merger by almost 14% compared to a control group. The study reveals a serious decline in competition among health insurers with nearly three out of four metropolitan areas rated as highly concentrated. In fact, 41% of metropolitan areas had a single health insurer with a commercial market share of 50% or more.

Blue Shield Of California Under Pressure

Blue Shield Of California Under Pressure
Blue Shield of California has been in the news lately and not in a good way. The Los Angeles Times originally broke the story that the company has been stripped of its tax-exempt status. Also in the news, the company’s former chief technology officer is suing after being dismissed before collecting on his $450,000 bonus.

Tax authorities stripped Blue Shield of California of its tax-exempt status in California and ordered the company to file returns dating to 2013, potentially costing the company tens of millions of dollars. Insurance commissioner Dave Jones said, “The Franchise Tax Board decision to terminate Blue Shield’s tax-exempt status confirms what I have said for years – that Blue Shield charges excessive rates and acts like a for-profit health insurer. Blue Shield is also dodging the payment of premium taxes by taking advantage of a legal loophole that allows Blue Shield to move its health insurance products from Department of Insurance regulation to Department of Managed Health Care regulation.”

The Department of Insurance collects premium taxes from all for-profit and non-profit health insurers. Jones said that Blue Shield has moved most of its health insurance policies over to the Department of Managed Health Care. “We need to pass AB 1434 by Assembly member Kevin McCarty to close the loophole that allows Blue Shield to move its health insurance products to the Department of Managed Health Care to avoid the strong consumer protection oversight of the Department of Insurance and avoid paying premium taxes,” he said. The Blue Shield loophole costs the state $100 million in premium taxes annually. As a tax-exempt company with surplus of $4.2 billion Blue Shield was able to accumulate an enormous amount of money on which it did not pay state taxes by evading the tax on the premiums it collects, he added.

Blue Shield of California issued the following statement in response: Blue Shield of California is a mission-driven not-for-profit health plan with a demonstrated commitment to the community. A longtime supporter of healthcare reform, we limit our net income to 2% of revenue and have contributed $325 million to our foundation’s efforts to improve the health safety net and address domestic violence. We pay federal income taxes, state gross premium tax and Affordable Care Act taxes and fees. We believe we meet the requirements for a state income tax exemption and have challenged the California Franchise Tax Board’s finding to revoke our tax exempt status. We filed California state income tax returns beginning in the 2013 tax year. The FTB decision has no bearing on our ability to continue to meet the needs of our members and community and we remain in strong financial health. Regardless of whether we prevail in our tax dispute, we will remain a not-for-profit.

Network Regs Go Into Effect Immediately

Emergency regulations go into effect immediately to establish stronger requirements for health insurers to create and maintain medical provider networks. In 2014, many health insurers reduced or narrowed their medical provider networks and/or shifted to offering exclusive provider organization health insurance products with no out-of-network benefits. Consumers said they had trouble getting appointments with doctors; they had to go long distances to get in-network medical care; or they went to doctors who appeared in their health insurer’s provider directory, but were not in the health insurer’s medical provider network.

California Insurance Commissioner Dave Jones said, “Some consumers have been forced to pay huge out-of-network charges when their health insurer fails to provide adequate medical providers in their network or when care is provided by out-of-network providers without even informing or asking the consent of the patient. This emergency regulation is necessary to make sure that health insurers establish and maintain adequate medical provider networks to meet the health care needs of their policyholders, to make sure medical provider directories are accurate, and to stop the practice of surprising consumers with huge charges for out-of-network providers who provide care without first informing the patient and getting their consent.”

The emergency regulations require health insurers to do the following:
• Include enough primary care physicians who accept new patients in order to accommodate enrollment growth.
• Include enough primary care providers and specialists with admitting and practice privileges at network hospitals.
• Consider the frequency and type of treatment that’s needed to provide mental health and substance use disorder care when creating the provider network.
• Adhere to and monitor new appointment wait time standards.
• Prevent surprise bills by requiring medical facilities to inform patients that an out-of-network medical provider will participate in the non-emergency procedure or care, before the care is provided, so that the patient can decline the participation of the out-of-network provider if they so choose.
• Report information about the networks and changes to the networks to the Dept. of Insurance on an ongoing basis.
• Provide accurate provider network directories to the Department and make them available to policyholders and the public.
• Make arrangements to provide out-of-network care at in-network prices when there are insufficient in-network care providers.

Last Updated 12/01/2021

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