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.”

The Cadillac Tax Gets Delayed Until 2018

Congress passed a $1.5 trillion omnibus spending bill and $680 billion tax-extenders package, which funds the government through September 2016. President Obama signed the legislation on Friday. Included in the bill is a provision that will delay the Cadillac tax. The Affordable Care Act (ACA) imposes a 40% non-deductible excise tax on health plans with values exceeding $10,200 in coverage for singles and $27,500 for families beginning in 2018. The provision is indexed to inflation and will rise automatically over time, potentially affecting all employer-sponsored plans. If the tax goes into effect, employers could shift the cost of the tax to employees by raising deductibles and increasing other out-of-pocket costs. The omnibus bill delays the tax for two years, until 2020.

Sen. Sherrod Brown (D-OH) said, “A delay of the Cadillac tax is welcome relief for middle-class workers who shouldn’t be stuck with higher out-of-pocket costs or lower quality health care. Brown sponsored the American Worker Health Care Tax Relief Act of 2015, which would repeal the tax. The bill demands that repeal is accompanied by a proposal to offset lost tax revenue to prevent an increase in the federal deficit and protect the integrity of the health law. He added, “While I plan to continue working with my colleagues toward a full repeal of this tax, a two-year delay of the implementation date of this harmful tax will temporarily ensure that the cost of care isn’t shifted to workers in the short term.”

Terry O’Sullivan, general president of the Laborers’ International Union of North America (LIUNA) said, “LIUNA is just one of many labor, employer, health policy, and other groups opposed to this indefensible, misguided, and regressive 40% middle-class excise tax. Congressional action, while not the hoped-for outright repeal, is a big step in the right direction, and signals a recognition that the tax is deeply flawed. We hope that in the additional two years provided by this delay, Congress and the next President will, once and for all, repeal the deceptively named ‘Cadillac Tax.’”

Appeals court rules against Obama administration on ACA contraception opt-out

The 8th US Circuit Court of Appeals has upheld two lower court rulings against the Obama administration, saying provisions that let employers opt out of the Affordable Care Act’s mandate that health plans cover contraception violate the employers’ religious freedom. Other federal appeals courts have said the opt-out provisions reasonably accommodate religious freedom. The conflicting ruling increases the likelihood that the issue will go to the Supreme Court. Reuters (9/17), Bloomberg (9/17)

Judge Says that the House GOP Can Sue the President

The Los Angeles Times reports that House Republicans won the opening round in a lawsuit against President Obama over their claim that his administration spent money for health insurers under the Affordable Care Act without receiving needed approval by Congress. U.S. District Judge Rosemary Collyer ruled Wednesday that the lawmakers have the legal standing to sue. The Constitution “could not be more clear: ‘No Money shall be drawn from the Treasury but in consequence of Appropriations made by Law’,” she said, quoting a key provision. “Neither the president nor his officers can authorize appropriations; the assent of the House of Representatives is required before any public monies are spent.”

The judge rejected pleas by Obama’s lawyers to dismiss the House lawsuit on the grounds it involved a political dispute, not a legal one. Collyer said that the House claimed it would suffer an “institutional injury” if the president and his aides could spend money on their own authority. Her ruling is only the first step, however. She told lawyers she would hear arguments in the fall on whether the administration’s action violated the Constitution. If Collyer, a judicial appointee of President George W. Bush, were to decide in favor of the House on the merits, Obama’s lawyers would appeal to the U.S. Court of Appeals for the District of Columbia Circuit, where Democratic appointees are in the majority. From there, the case could move to the Supreme Court. Unless the dispute moves with unusual speed, a final decision might not come until after Obama has left office. Nonetheless, Collyer’s initial ruling is a victory for House Speaker John A. Boehner, and it is likely to be seen as endorsing the GOP’s view that Obama overstepped his authority. In a statement, Boehner said he was “grateful to the court for ruling that this historic overreach can be challenged by the coequal branch of government with the sole power to create or change the law. The president’s unilateral change to Obamacare was unprecedented and outside the powers granted to his office under our Constitution.”

The White House said it would seek an immediate appeal. “The law is clear that Congress cannot try to settle garden variety disputes with the executive branch in court,” said Deputy Press Secretary Jen Friedman. “This case is just another partisan attack — this one, paid for by the taxpayers — and we believe the courts will ultimately dismiss it.” Many lawyers saw the House suit as unprecedented. In the past, courts have regularly said lawmakers do not have standing to turn their political fights into legal battles. Last summer, when the House voted to sue Obama, many legal experts predicted the suit would be tossed at the first stage. Boehner had first alleged that Obama’s aides had violated the law when they waived several deadlines under the Affordable Care Act.

But more recently, the lawyers for the House focused on a little-known dispute over how to reimburse health insurers who take on more low-income policyholders. The Affordable Care Act said these insurers would be reimbursed for waiving copayments and other costs for these new policyholders, but it did not make clear whether this money would be provided automatically or instead would require an annual appropriation from Congress. So far, the administration has spent $4 billion, and the total spending is expected to reach $175 billion over a decade. After the Republican-led House refused to appropriate money, Health and Human Services Secretary Sylvia Mathews Burwell decided the reimbursements were mandatory under the law and could be provided despite the lack of an appropriation.

Law professor Jonathan Turley, the lead counsel for the House, said the judge’s ruling means the court will decide “an issue that drives to the very heart of our constitutional system: the control of the legislative branch over the power of the purse.” Despite the setback, health law experts do not see this case as posing a major challenge to the future of Obama’s healthcare law. If spending for the reimbursements were cut off, insurers might have to raise premiums somewhat. Other experts say the insurance companies could turn to a federal claims court to seek reimbursements. For the full article, visit latimes.com.

Alito hints at compromise ACA ruling

Supreme Court Associate Justice Samuel Alito on Wednesday hinted during arguments on Affordable Care Act tax credits that a ruling against the Obama administration might not immediately invalidate credits. Instead, the court might stay its own ruling to allow a transition phase during which consumers who used HealthCare.gov to enroll in a 2015 health insurance plan could keep their tax credits for the year. Bloomberg (3/4), Kaiser Health News (3/4)

Obama administration issues broad ACA mandate exemptions

Potentially millions of people may qualify for an exemption to the Affordable Care Act’s tax penalty for not having health insurance, including people whose homes have been foreclosed on or who are homeless, victims of domestic violence, people whose utilities have been turned off, and people who have had a family member die recently. The rules for an exemption are ambiguous, Avalere Health president Dan Mendelson said, and critics say the exemption rules gut the individual mandate. Bloomberg (3/14)

HHS might permit further renewals of noncompliant plans

Obama administration officials are considering rules that would allow insurance carriers to continue extending health plans that do not comply with Affordable Care Act standards, according to industry insiders. HHS spokeswoman Joanne Peters said the administration is weighing the possibilities for such plans. Bloomberg Businessweek (2/7

White House plans ACA good news campaign

The Obama administration and Affordable Care Act supporters are planning a campaign to highlight success stories related to the insurance exchange rollout, such as stories of people who have access to a health care provider after many years without care. Politico (Washington, D.C.) (12/29)

New health plan enrollees are in limbo until premiums are paid

Only about half of consumers who purchased a new health plan have paid the first month’s premium, and those who have not yet paid will have to pay upfront and be reimbursed later for any medical services they receive before coverage starts. Most insurers extended the payment deadline to Jan. 10 after the Obama administration extended the enrollment deadline for Jan. 1 coverage to Dec. 24; some insurers have even pushed the payment deadline to Jan. 31 and are sending membership cards before receiving payment. Some pharmacies have said they will fill prescriptions for patients who can show they have signed up for coverage. The Wall Street Journal (tiered subscription model) (12/30)

Last Updated 10/28/2020

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