The recent news that Anthem, California’s largest healthcare provider, will purchase insurance giant Cigna for nearly $50 billion caps off an extended period of mergers among America’s biggest healthcare companies.
Earlier in July, a deal worth $37 billion saw two other massive companies merge, as it was announced that Aetna will absorb Humana. These deals have pushed Federal regulators to consider the long term effects of the healthcare marketplace dwindling down from five to just three major providers.
Antitrust regulations designed to ensure competition in the marketplace could be avoided by Aetna and Anthem committing to some divestitures, but with the deals not set to close until the later portion of 2016, there is plenty of regulatory ambiguity surrounding both of them.
“You’d have a massive reshuffling and increased concentration,” Diana Moss, president of the American Antitrust Institute in Washington told Bloomberg Business. “It’s more bottlenecking of the healthcare supply chain, which we worry about already.”
Pros and Cons
If there are any winners in this scenario, that crown would have to go Anthem and Aetna. By absorbing Cigna, Anthem becomes the largest health insurer in the country. The pair will combine to insure nearly 53 million people and will generate approximately $117 billion worth of revenue in 2015. Aetna also wins, combining with Humana to insure 33.5 million people for a combined generated revenue of $115 billion in 2015 alone.
The driving force behind the mergers is the Affordable Care Act (ACA), a policy that may have benefited big insurance companies as much as it has the average American. The law has significantly increased the number of insured Americans, but because of regulations that created incentives to combine and cut costs, insurers can point to government policy as the fuel for these deals and use it as leverage when seeking antitrust approval.
The result of more Americans being insured has been the big five insurance companies seeing huge gains in profit margin over the last five years. Now, by joining forces, the companies claim that the deal will generate $2 billion of annual savings in operating costs, thus lowering the price of premiums for those insured under their umbrella.
However, the American Medical Association and American Hospital Association both have immediate concerns about narrower networks and a lack of competition leading to higher prices in the end.
“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,” the American Medical Association said in a statement.
Customers aren’t the only ones who could feel the squeeze of the narrowing health market. Doctors and hospitals say that insurers are narrowing networks for patients who get their insurance on public exchanges opened by the ACA.
Dr. Halee Fischer-Wright, CEO of the Medical Group Management Association, expressed her concerns to Forbes over the planned mergers.
“In an environment where the scales are already tipped, we are extremely concerned about the market imbalance this creates for medical practices and patients. This will do nothing more than inflate healthcare premiums and decrease payments to physicians in favor of insurance companies and shareholder profits,” she said.
Furthermore, some employers may worry that the mergers will leave them with even fewer vendor options to provide their employee benefit packages than they have now in an already condensed marketplace.
The Effect on Consumers
Proponents of these deals say that larger health insurers can persuade healthcare providers and pharmaceutical companies to lower prices based on the size of their memberships and that the savings will be passed along to the consumer.
But fears over the amount of control that Anthem, Aetna and the nation’s largest healthcare provider UnitedHealth Group can impose on the healthcare market persist despite these claims from proponents of a deal. Low competition also could mean more control for the big names in health insurance and consistent profits that are immune to market changes.
One event that could spark more debate about the consolidation of the healthcare market is the Senate Judiciary Committee’s antitrust panel hearing scheduled for September. It is said to be focused on examining the effect of the mergers on consumers.
The Future of Healthcare
The ACA was seen by some as a compromise rather than a straight push for the implementation of a single payer system to overhaul a failing American healthcare system. But as Wall Street Daily’s Greg Miller noted, it was actually a way for the government to assert more control over healthcare companies.
Private companies are in some ways easier to control with policy than bureaucratic government agencies, so the goal of the ACA is to actually encourage mergers that condense the number of healthcare insurers to a heavily regulated few that achieve more modest, but guaranteed profits, much like the way utilities companies do now.
In the end, it all depends on the quality of what the customer receives and the amount they have to pay for it. If consumer premiums reach levels that the average American cannot afford, they’ll most likely vote for policy makers who will reverse these trends and instill competition back into the marketplace. But if the system is able to provide adequate care to a growing population at a reasonable cost, thus fixing the flawed system of the past, the road to a single payer system may already be paved.
