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.”

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.

Insurance Regulation Shifting Toward Managed Care Agency


by David Gorn
The regulation of health insurance in California is shifting dramatically toward the Department of Managed Health Care, whose share of the commercial market has mushroomed in recent years. The change has come at the expense of the other agency in the state’s unusual bifurcated system, the California Department of Insurance, whose authority over commercial health plans plummeted from 20% of the market to about 12% between 2012 and 2014 — the most recent data available.

For a variety of reasons, the shrinking of the insurance department’s responsibilities is likely to continue, according to Katherine Wilson, CEO of Wilson Analytics, a health care consulting firm based in San Francisco. “It’s a huge shift, particularly in the individual market,” Wilson said. “And the change in the small-group market is huge too, just not as big.” In 2012, the insurance department regulated 71% of the individual market; by the end of 2014, that figure had plunged to just 18%. California is the only state in the U.S. with dual health insurance regulators.

Critics of the state’s divided approach note that it dilutes regulatory power by giving the insurance companies a wedge between the two agencies and creating needless inefficiencies in health care and how it’s paid for become increasingly complex.

“This dual structure contributes to consumer confusion, government and insurance carrier administrative burdens, and difficulty in monitoring what is being bought and sold in the insurance marketplace,” according to a 2011 paper by the Kelch Policy Group, published by the California Health Care Foundation. It also complicates the taxation of insurance companies: taxes on health plans regulated by the managed care agency are lower in many cases than they’d be if the same health plans were governed by the insurance department — an issue that is wending its way through state courts.

The Department of Insurance, led by Commissioner Dave Jones, has authority over old-fashioned indemnity plans and some PPOs. The managed care agency traditionally regulates HMOs, but recently it has picked up some types of PPOs. That has blurred the regulatory line between the two agencies. Perhaps more important, it has allowed some insurance companies the flexibility to essentially choose their regulator in many cases. That is a contributing factor in the shift of health plan supervision away from the insurance department.

Health insurers have said that consolidating policies under DMHC’s jurisdiction is more about achieving operational efficiencies and that the regulatory requirements are just as rigorous as insurance department rules.

But it’s also the case that some insurers feel uncomfortable with Jones, who is an elected politician with ambitions for higher office and does not shy away from public confrontation with the industry -– though as the data show, his influence over insurance companies is contracting.

Shelley Rouillard, appointed by Gov. Jerry Brown, has been director of the managed-care agency since December 2013. She has pursued several high-profile enforcement cases against health plans, including the failure to provide adequate mental-health treatment and giving patients inaccurate provider directories.

Neither agency, however, has the power to stop insurers from raising premiums, no matter how large the increases. Legislative efforts have been made to change the regulatory structure. Last session, for example, Assembly member Kevin McCarty introduced a bill that would have put all PPO insurance products under purview of the Department of Insurance. That proposal went nowhere, but it is a two-year bill so it could return during the legislative session. More likely, the Department of Managed Health Care will continue to assume a growing regulatory role, Wilson said. Over the years, there have been calls to end California’s bifurcated health insurance regulation, but if the trend continues it may resolve itself, she said. “It would be sort of a de facto single regulator.”

The Dept. of Insurance Year in Review

The California Dept. of Insurance lists the following actions it took last year related to life insurance, health insurance, and workers comp:

  • Issued emergency regulations on the adequacy of health insurance medical provider networks.
  • Created a healthcare price and quality ratings comparison tool (California Healthcare Compare at
  • Issued emergency regulations strengthening requirements for health insurers to have enough doctors, hospitals, and clinics in their networks to ensure that consumers have timely access to health care. The regulations were approved on February 2, 2015.
  • In a major fraud case, pharmaceutical company Warner Chilcott agreed to pay $23.2 million for defrauding California insurers through drug marketing fraud. Jones insisted that Warner Chilcott agree to discontinue the unlawful promotion of pharmaceutical products identified in the whistle blower complaint and sold in California. Additionally, the Commissioner settled another insurer fraud case brought against Daiichi-Sanyo for $950,000 for making illegal kickbacks to healthcare providers.
  • Concluded a 15-year-old case involving Executive Life Insurance Company, which was placed into liquidation over 25 years ago by the department. French company Artemis S.A. agreed to pay $200 million for allegedly defrauding Executive Life in addition to $110 million it paid previously bringing the total recovery against all defendants to over $930 million.
  • In 2015, there were five national settlements with insurers as a result of investigations of their failure to use the Death Master File database to pay life insurance benefits. Insurers representing over 73% of the life insurance market have agreed to reform their practices and use the Death Master File database to identify deceased policyholders in order to pay benefits to their beneficiaries. Combined settlements have resulted in life insurers returning more than $1 billion in life insurance benefits to beneficiaries nationwide.
  • For fiscal year 2015/2016, the Department awarded $34.95 million in grants to district attorneys to combat workers compensation fraud and more than $21.95 million in grant funding to fight auto and organized auto fraud. As of November 30, Dept. of Insurance detectives arrested 745 people for insurance fraud this year.

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.

State Reaches Settlement in Pharma Pay-for-Play Scheme

The California Dept. of Insurance and whistleblowers reached a $23.2 million settlement with pharmaceutical company, Warner Chilcott. Three former employees said that Warner Chilcott paid kickbacks to doctors and falsified prior authorization forms to increase the number of prescriptions for several medications. Whistleblowers alleged that Warner Chilcott used illegal kickbacks to influence treatment decisions. They said that the company often hosted events at high-end hotels and spas with little or no educational content in order to encourage physicians to write more prescriptions for Warner Chilcott medications.

As part of the settlement, Warner Chilcott will refrain from promoting its pharmaceutical products identified in the complaint and sold in California. Of the $23.2 million state settlement, California will get $11.8 million, which is to be used for enhanced insurance fraud investigation and prevention efforts.

Scott Simmer, the whistleblowers’ lead counsel said, “The federal False Claims Act allows whistleblowers to sue for fraud related to government health plans, but only California and Illinois have statutes that allow whistleblowers to bring claims alleging illegal kickbacks to health care providers for the purpose of defrauding private health insurance plans.” In California, private citizens can sue and get a share of the recovery. The whistleblower’s share of a federal recovery in a non-intervened case is 25% to 30%.

“This case really should get the attention of state insurance commissioners around the country. To put things in perspective, the federal False Claims settlement returned a net of around $2.3 million to California’s Medicaid program, but this settlement will bring in a net of $11.8 million to the state’s general fund. Most importantly, drug companies have received a clear message not to engage in drug marketing fraud in the state of California,” he said.

A separate lawsuit was filed in federal court in Massachusetts alleging that Warner Chilcott violated the Federal False Claims Act. Also, the Dept. of Justice announced a settlement of the federal allegations on October 29, in which Warner Chilcott pleaded guilty to healthcare fraud and agreed to pay $125 million to resolve federal civil and criminal liability for alleged activities that violated the federal anti-kickback and HIPAA statutes, and for false claims submitted to Medicare and Medicaid.

New Law Increases Financial Protections for Seniors Investing in Annuities

New Law Increases Financial Protections for Seniors Investing in Annuities

New consumer protections were ushered in when Governor Brown signed Senate Bill 426 (Leyva) into law. Under the new law, the death benefit for fixed deferred annuities must be at least equal to the annuity amount or the accumulation value for those annuities issued to consumers 65 or older. The law also prohibits companies from charging a surrender penalty on the death benefit payment. Commissioner Dave Jones said, “While many companies do not pay out a death benefit that is less than the premium paid, some insurers do apply surrender penalties reducing the death benefit below the total premiums, which is the reason for this important legislation. I thank Senator Leyva for partnering with me on this change in law.”  Taking effect on January 1, 2016, SB 426 earned strong bipartisan support in the Legislature and was supported by the California Advocates for Nursing Home Reform, California Health Advocates, Congress of California Seniors and the Elder Financial Protection Network. Commissioner Jones encourages seniors to learn more about their options by visiting the Senior Information Center on the California Department of insurance web site

Overtime Reform, ACA, LGBT Policies Among Concerns for Today’s Employers

Agents See Lower Revenues

The Affordable Care Act (ACA) is among the top compliance concerns for the largest companies in the United States, according to a survey by Littler, a labor law practice. The survey was conducted in April and May. Changing the threshold for overtime pay could squeeze out jobs due to payroll increases. Companies are watching the Dept. of Labor carefully; they are aware that the required amount of overtime pay is likely to increase sharply. Twenty-five percent are concerned that the DOL would raise the minimum salary for professionally exempt employees above the $23,600 threshold – a concern that was realized after the White House announced a new estimated level of $50,440 for 2016.

Meanwhile, 37% of employers are concerned that the DOL may eliminate the executive, administrative and professional exemptions for workers who spend more than 50% of their work time engaged in non-exempt duties. Twenty-nine percent of surveyed employers are worried about the executive exemptions that may disappear for supervisors who engage in some non-exempt duties. Tammy McCutchen of Littler said, “The overtime adjustment and other potential changes from the DOL could cost employers billions of dollars. The employer community should take action now to shape the final rule.”

  • The ACA
    Before the Supreme Court’s landmark decision late last month in King v. Burwell, 55% of respondents had engaged or planned to engage with employee benefit attorneys or consultants to help navigate regulations relating to the Affordable Care Act. That was down slightly from 58% in 2014. Meanwhile, 18% are taking a wait and see approach in 2015 about the ACA compared to 14% last year.
  • LGBT Rights 
    Last month, the Supreme Court announced its decision in Obergefell v. Hodges, finding that same-sex marriage bans are unconstitutional nationwide. Even before the ruling in Obergefell v. Hodges, many employers had been moving toward more inclusive workplaces for LGBT employees. Forty-seven percent said their companies had established policies to address issues faced by LGBT employees. Only 11% said that changes in laws prompted new policies, and 13% said that their companies intended to make changes to policies within the next year.  Mark Phillis of Littler said, “Now that same sex marriage is legal nationwide, employers should revisit their benefit plans, leave policies, domestic partnership policies, and non-discrimination policies to ensure they are treating all their employees equally.”
  • Joint Employer Definition
    Employers are concerned with the potential change to the joint employer standard. The National Labor Relations Board is reviewing multiple cases that could modify the definition. As a result, 69% say they are concerned about exposure to greater legal liability; and 59% are concerned about the difficulty in monitoring the employment practices of separate entities. Michael Lotito of Littler said, “For employers, the burden of having to monitor not only their own employees, but also the employees of subcontractors is especially daunting and has the potential to have a huge impact on industries throughout the country. It is certainly worth keeping a close eye on.” Cost is a continued concern among employers as the National Labor Relations Board and other agencies continue their enforcement efforts. Thirty-four percent of respondents are justifiably concerned that a change from the board on this matter could result increased costs for their company.
  • EEOC and Discrimination Claims in the Workplace
    Fifty-seven percent of respondents expect an increase in charges relating to hiring barriers, including the consideration of criminal or credit histories. Thirty-seven percent of employers expect an increase in claims relating to accommodations for disabled workers. Thirty-four percent expect more investigations and charges about equal pay issues. Respondents are also concerned about claims of retaliation (33%) and charges of age discrimination (32%).

Barry A Hartstein of Littler said, “The survey results mirror concerns that the newly appointed EEOC Chair, Jenny Yang, and  General Counsel, David Lopez will focus on larger, systemic cases in the near term. Employers will continue to grapple with discrimination claims as the EEOC ramps up its enforcement efforts. The concerns expressed in the survey align with what is happening in the courts, such as the Supreme Court’s decisions in UPS v. Young and EEOC v. Abercrombie, or newly minted ban the box legislation. In short, employers have many issues impacting their workforce related to discriminations and hiring practices.”

Last Updated 08/10/2022

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