THE NEW YORK TIMES
By THE EDITORIAL BOARD
JULY 25, 2016
A wave of mergers in many sectors of the economy over the last several decades has significantly reduced competition and hurt consumers. That’s why the lawsuits filed last week by the Department of Justice and state attorneys general in federal court challenging two big heath insurance mergers were so important.
Antitrust officials say Aetna’s $37 billion acquisition of Humana and Anthem’s $54 billion purchase of Cigna will reduce the number of large national health insurers to three, from five today. That would lead to fewer choices and higher premiums for individuals and employers in places like New York, Los Angeles and Kansas City, Mo. The mergers could also hurt doctors and hospitals, because they would have less bargaining power against the larger insurers when negotiating reimbursement rates.
These two proposed mergers are the culmination of a series of deals in the health care industry that have reduced the number of insurers and caused the consolidation of hospitals and doctors’ practices everywhere. Every merger seems to compel another as competitors bulk up, lest they find themselves with less leverage in negotiations between insurers and providers.
Health industry executives, including those at Aetna, Humana, Anthem and Cigna, have typically defended these mergers by arguing that they are necessary to make the health care system more efficient. They also say they allow doctors and hospitals to better coordinate medical care by, for example, having different specialists working for the same hospital or covered under the same insurance policy — something they argue is encouraged by the Affordable Care Act, the 2010 health reform law. (Aetna and Humana and Anthem have said they will fight the antitrust suits, which were filed in the United States District Court for the District of Columbia; Cigna says it is evaluating its options.)
There are clearly benefits to better-coordinated care, but that does not justify all of these mergers. Coordination can often take place without concentrating so much market power in the hands of a few companies. And rather than making the system more efficient, recent research has found that increased concentration has driven up the cost of health care.
One 2012 study published in the American Economic Review found that consolidation in the health insurance industry between 1998 and 2006 was responsible for a seven percentage point increase in premiums, or about $34 billion a year. And a study by the Robert Wood Johnson Foundation found that hospital mergers also increase costs, sometimes by more than 20 percent.
Loss of competition from the two proposed megamergers would very likely drive up prices and reduce benefits. Aetna and Humana compete aggressively against each other to sell Medicare Advantage plans, which many people buy for coverage that is more comprehensive than under traditional Medicare. The companies together sell nearly 980,000, or 61 percent, of the 1.6 million Medicare Advantage plans bought in 364 counties around the country. The merger would make it easier for the companies to raise premiums without fear of losing customers.
The Anthem-Cigna deal would affect national corporations that buy insurance for employees. In its lawsuit, the government says the two companies together control at least 50 percent of the national employer-based insurance market. They also compete over local employers in 35 metropolitan areas, like New York, Los Angeles and St. Louis. Eliminating that competition would increase their ability to demand higher fees from corporations.
It’s possible that the combined companies will make changes that will alleviate antitrust concerns. For example, the Justice Department last week reached a settlement with Anheuser-Busch InBev, the world’s largest beer company, that allowed it to buy SABMiller, the second largest brewer. In exchange for the approval, InBev will have to divest SABMiller’s stake in MillerCoors, which controls about a quarter of the American beer market, and agree to alter distribution practices to make it easier for small brewers to get access to grocery stores and bars.
Officials shouldn’t allow any merger unless it is structured in a way that improves competitive conditions and helps consumers through lower prices or better service.