The federal government wants more say in merger and acquisition activity among the nation’s major health insurers as the industry continues to adapt to the Affordable Care Act.
A senior Justice Department official told the Wall Street Journal this week that potential deals between the nation’s five largest health insurance companies have the potential to disrupt the market, limiting competition and sending premiums soaring upward. As such, antitrust enforcers want greater purview of pending transactions.
Already, the Justice Department has had discussions on how it would approach such deals. Currently, Anthem Inc. is pursuing a $47.5 billion acquisition of Cigna Corp., Aetna Inc. is closing in on a takeover of Humana Inc. and UnitedHealth Group Inc. is considering a bid for Aetna.
Officials say if all mergers come through, it would look at the deals collectively in an attempt to determine what effect the deals might have on the marketplace – specifically whether rate increases would be likely and whether any antitrust concerns would be raised.
In the past, the DOJ has focused on how potential mergers or acquisitions would affect local and regional markets for specific insurance products. In 2012, for example, the department raised concerns with Humana’s acquisition of Arcadian Management Services as well as WellPoint’s acquisition of Amerigroup due to lack of competition in smaller markets.
If any of the deals currently being proposed go through, analysts say it would result in an industry topped by three dominant carriers – each earning more than $100 billion in annual revenue. That could seriously dampen competition in many markets.
Industry officials, however, say merger and acquisition activity is not likely to affect premium pricing. Instead, insurers’ “focus is on making sure consumers have affordable coverage,” a spokesperson for America’s Health Insurance Plans said.
Greater affordability certainly seems to be the focal point of messaging coming from health insurers. Anthem CEO Joseph Swedish characterized the potential takeover of Cigna as a deal that would result in “the scale to drive greater efficiency and affordability for our customers” as well as “improvements in the total cost of care.”
Yet some critics say that rhetoric doesn’t always pan out in reality.
“There’s no good evidence out there that scale is associated with lower premiums or improvements in plan quality,” Leemore Dafny, a former official with the FTC, told the Journal. Even if there are cost savings to be had, Dafny questions whether insurers would pass those on to consumers.
Regardless of the effect on the market, merger and acquisition activity among insurers is likely to continue. The ACA’s stipulation that insurers spend the majority of premiums on healthcare creates incentives to cut back on administrative costs – something that’s more easily done in a merger.
Similarly, pressure to collect data on consumers in an attempt to cut back on healthcare costs is better accomplished by companies that have the scale and resources to do so.
Analysts say they expect these and other forces will continue to push insurers toward consolidation, and expect a deal between any of the top five health insurers shortly.
