The big healthcare story of the week, of course, is the Supreme Court’s decision to leave in place the insurance subsidy regime set out by the Affordable Care Act. But big as it is, that news just lets the status quo stand. There’s another important healthcare story percolating that could bring important changes to the insurance markets—and while it’s drawn some good recent coverage, it’s going to demand more attention from reporters around the country soon.
The story in question is widespread talk of consolidation in the health insurance industry, and The Wall Street Journal on Monday offered a treatment that is not your run-of-the-mill recap of Corporation A looking to merge with Corporation B. The article, written by Anna Wilde Mathews and Christopher Weaver, pushed the story into the “what’s likely to happen” department in a granular way and raised serious questions about how consolidation could affect choices and premiums for scores of consumers in the coming years.
In recent weeks, merger and acquisition fever has gripped the health insurance industry, with talk of Humana—once a small regional carrier that morphed into a Medicare Advantage powerhouse—merging with Aetna, a company that has grown by buying up smaller fish such as U.S. Healthcare and more recently Coventry Health Care. There’s also speculation that Aetna itself, the number three carrier, might be swallowed up by UnitedHealth Group, the industry’s giant, while Anthem—the second-biggest insurer, which traces its roots to Blue Cross of California—may eventually bring Cigna, the current number five carrier, into its family. The country may be left with two or three super-insurers duking it out with the local Blue Cross Blue Shield plans that remain.
An obvious question—for journalists, for the regulators who must sign off on these deals, and for the public—is what the impact of these mergers will be for consumers. In typical M&A stories, that question does get raised, along with all the other angles that are more of interest to shareholders. But the Journal’s piece went farther by examining federal databases to show with real numbers what might happen in particular states and concluded the big health insurers pursuing these megamergers “have market overlaps that could damp competition” in Medicare Advantage plans, as well as policies sold on state exchanges and for policies workers get from their employers.
Using a Medicare database, Mathews and Weaver found that in 180 counties, mostly in the South and Midwest, an Aetna-Humana merger would mean they would “hold at least 75% of Medicare Advantage customers.” In Sedgwick County, Kansas, for instance, the new mega-carrier would cover all but 400 of the 15,000 Medicare beneficiaries enrolled in the Medicare Advantage program there. Using another federal database, they concluded an Aetna-Humana merger could eliminate a competitor on the federal ACA shopping exchange in eight states, and a UnitedHealth Group-Aetna tie-up could remove a competitor in 11 (though it’s worth noting the current plans are not always offered in every part of a state).
These deals are just speculative at the moment. But the trends for years have been toward agglomeration—in all parts of the industry. Back in 2013, in a series called “The Big Boys,” I urged journalists to keep an eye on market consolidation, which was accelerating under the Affordable Care Act. One post noted that ENT and Allergy Associates, which is now one of the largest ENT practices in the country, had reached a payment deal with Aetna. It was hardly a momentous event, I wrote, noting it was “one more link in a chain of dots about an insurance company that, if connected, added up to a much larger story about healthcare costs and insurance premiums.” Earlier this year the group’s CEO, Robert Glazer, told me that whoever controls the patient population has the upper hand in the battle between insurers and providers. The more people under your tent—whether you’re providing the service or paying the bill—the easier it is to dictate prices. Bigger insurance companies with more potential patients make the negotiations with provider groups, which have themselves been growing gigantic, that much easier.
That’s the story about how insurer consolidation could be good for consumers, by providing a counterweight to profit-seeking hospitals. Of course, there’s also a more concerning way to see this story: that when insurers gain pricing power, that power will be used against consumers themselves. For example, a 2013 study published in Health Management, Policy and Innovation found that a merger between UnitedHealthcare and Sierra Health in Nevada increased premiums more than 13 percent, relative to a control group. Researchers said the findings “suggest that the merging parties exploited the market power gained from the merger.”
Making sure that consumers are protected is the job of regulators—and as Mathews and Weaver explain, though the megamerger story is a national one, it has many local angles and implications. They write that “any of the deals would get tough scrutiny from the Justice Department as well a gauntlet of state regulators” in the carriers’ home states, who must approve the deal. Regulators in the home states of any subsidiary company whose ownership changes as a result of the merger also have a say. And a few states even have laws giving them authority to review the competitive impact of a merger of two companies not based in the state.
In fact, some state regulators are concerned. As the Los Angeles Times reported last week, California Insurance Commissioner David Jones is alarmed at the prospect of more consolidation, and the effect it could have on premiums. When I spoke to Jones myself this week, he said there is already a “lack of sufficient competition” in the state, and in many counties only one insurer selling policies through
Covered California, the state exchange. Only four insurers sell close to statewide, and they control 94 percent of the individual market policies on the exchange, he added.
For journalists around the country, figuring out the power that state regulators have—and how they’re likely to exercise it—is an important part of covering this story. Another task is figuring out how concentrated local insurance markets already are, and what the local impact of more consolidation would be. Weaver advises that reporters check the names of companies that might be subsidies of the big boys when trying to gauge concentration. You might see Oxford Health Plan listed, but Oxford is a UnitedHealthcare company. Aetna shows up under its own name, but also under various Coventry-related brand names.
One final suggestion: Push merger proponents on the use of vague language like “efficiency” and “value.” A merger that brings “efficiency” sounds good, but what exactly does it mean? Will it lower premiums? A spokesman for America’s Health Insurance Plans, the carriers’ trade group, told the Journal that mergers don’t drive higher premiums, because insurers “are in the business of ensuring consumers get the best value for their health-care dollars.” Sounds nice, but I seem to remember hearing something about how competition helps consumers get a good deal.