State legislators turn up heat on proposed insurance merger

A hearing Friday at the California Capitol Building asked hard questions about the proposed $6.8 billion merger between Centene and HealthNet

Insurance News

By Lyle Adriano

The Jan. 22 hearing in the California Capitol Building saw legislators pick apart Centene’s proposed $6.8 billion purchase of HealthNet, bringing up issues regarding market competition and insurance premium costs.

Insurance Commissioner Dave Jones asked academic experts and insurance executives present if there were any peer-reviewed reports that could prove if health insurance mergers resulted in lower consumer prices, but none could give him an answer.

Jones also asked conversely if the panel is aware of any reports that proved that prices have increased following health insurance mergers. UC Berkeley health economics and policy professor Brent Fulton confirmed one such study, which concluded that "higher market concentration leads to higher health insurance premiums."

At this, representatives of Centene and HealthNet asserted that the merger would drive down premiums due to the efficiency of joining both companies.

"There is a strong pro-competitive rationale for Centene's proposed acquisition of HealthNet… If benefits from the acquisition are realized, the combined companies are likely to be a more efficient and more effective competitor in California and elsewhere, which ultimately will benefit consumers in the form of lower prices or better health benefits,” argued Lawrence Wu, an economist representing HealthNet.

Commissioner Jones also voiced his concerns about Centene pulling out a portion of its operations from the market following its purchase, which could stymie market competition.

Executives confirmed that there is nothing in the merger contract documents that suggest Centene would withdraw from the market, but insisted that the company will remain active.

Wu, however, suggested that should Centene pull out, it could be good for the local market by encouraging consumers to seek “smaller players.” Wu’s hypothesis was met with criticism by Jones, who believes that major companies such as Anthem Blue Cross and Blue Shield or Kaiser Permanente would pounce at the opportunity to fill the vacuum left by HealthNet’s hypothetical exit.

The deadline for the submission of comments to the Department of Insurance regarding the proposed acquisition is on Jan. 29.

Jones did not provide a definitive time frame for when he would either approve or reject the deal.

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