Insurance mega-mergers must work for us

Anthem, headquartered in Indianapolis, wants to buy rival Cigna to create the nation’s largest health insurer by enrollment, covering about 53 million patients in the U.S.
Anthem, headquartered in Indianapolis, wants to buy rival Cigna to create the nation’s largest health insurer by enrollment, covering about 53 million patients in the U.S. Associated Press file

At last count, about 1 in 10 Americans lacked health insurance, a rate that has been halved in a handful of years. Once, millions of people were one serious illness or pre-existing condition away from the poorhouse. This is major progress, and so far, it has happened without the soaring premiums and elimination of choice predicted by opponents of the Affordable Care Act.

Now, however, a wave of huge health insurance mergers is on the horizon, with complex implications for consumer choice and competition. Federal authorities are reviewing them, and soon states will begin to weigh in. California regulators must and should take full advantage of this chance to ensure that consumers won’t get burned.

Anthem – already a massive provider of employer-based insurance – wants to become the nation’s largest health insurer in terms of enrollment by buying its smaller competitor Cigna for $48 billion. In the Medicare Advantage slice of the market, Aetna wants to acquire Humana for about $35 billion.

The deals, like others announced this year, take place on an evolving competitive landscape. Under the Affordable Care Act, at least 80 percent of an insurer’s premiums must be spent on patient care. That protects consumers, but it also limits profits. To make money, companies have been acquiring rivals’ customers, the better to spread their costs.

The Aetna-Humana merger seeks to capitalize on the movement of baby boomers into the Medicare market. Other insurers are looking for economies of scale in handling the Medicaid managed care expansion under the Affordable Care Act.

The mergers might help control health care costs in Northern California. But elsewhere, insurance consolidation could raise premiums and narrow choice.

Still others are trying to keep up with the ongoing consolidation of hospitals and other health care providers, whose own mergers over the years have given them more leverage in negotiating reimbursements. In Northern California, for instance, mighty regional providers like Sutter Health have driven some hard bargains on reimbursement rates for hospitals and doctors, so health care costs and premiums are high.

Nationally, these mergers look grim for consumers. The deals will reduce the top five U.S. health insurers to just three (the third would be UnitedHealth Group). Health insurance markets, though, are regional or product-based. Some smart people here believe insurance consolidation will offset the power of Northern California providers and drive costs down. But not all markets are Northern California, and more power for insurance companies could mean higher premiums and deductibles, and fewer choices for other parts of the state.

Nationally, antitrust regulators can help by insisting that the merging companies sell off some of their plans to rivals in states where there’s too little competition. The state also will have a say through its departments of justice, insurance and managed health care.

They should not only focus on regional markets and barriers to entry, but also push for guarantees that any economies of scale from these mergers be passed on in the form of lower premiums for consumers. The state should also set some metrics on quality, such as provider directories that accurately reflect which physicians take which insurance. And maybe these mega-insurers should be asked to help bear the cost of poor and undocumented patients who are ineligible for subsidized health insurance.

There’s still time, but these proposed mergers should be analyzed fully to make sure that they work for us.