(FROM THE WALL STREET JOURNAL 6/22/15)
By Anna Wilde Mathews and Christopher Weaver
The nation's biggest health insurers, which are pursuing a
series of potential megamergers, have market overlaps that could
damp competition in sectors such as private Medicare plans, an
analysis of state and federal data by The Wall Street Journal has
found.
The board of Cigna Corp. on Sunday rejected a $47.5 billion bid
from Anthem Inc. that was disclosed on Saturday. Aetna Inc. has
made an offer for Humana Inc. in recent days. Those deals, if
completed, would shrink the current top five insurers to a powerful
big three, each with revenue on paper of more than $100 billion.
Meantime, the largest player by revenue, UnitedHealth Group Inc.,
has recently made a takeover approach to Aetna.
Some of the combinations could pose challenges to competition
around the country, according to the Journal's analysis. For
instance, an Aetna-Humana tie-up would increase by about 180 the
number of U.S. counties where at least 75% of customers for
Medicare Advantage plans are in the hands of a single insurer.
In addition, in eight states, an Aetna-Humana merger would
remove a competitor from the exchanges where individuals can buy
coverage under the Affordable Care Act. A UnitedHealth-Aetna
tie-up, meanwhile, would remove a competitor in exchanges involving
13 states. Insurers may not offer plans in every region of a state,
however.
Insurers will be able to point to operational efficiencies they
can glean from consolidating, as well as better deals with
health-care providers, which could result in lower costs for
customers. Hospitals themselves have been merging at a rapid pace.
Many experts have said that the provider consolidation can drive
higher rates -- and that more-powerful insurers might have a better
chance of countering them and striking pacts for new forms of
payment that incentivize efficiency.
"Insurers may be thinking, in order to maintain negotiating
position and not have our lunches eaten by these large providers,
we need to get bigger," said Martin Gaynor, a professor at Carnegie
Mellon University and former Federal Trade Commission official.
A spokeswoman for America's Health Insurance Plans, a trade
group for the industry, said health-plan mergers don't drive higher
premiums, and insurers "are in the business of ensuring consumers
get the best value for their health-care dollars."
The insurers' overtures amount to a high-stakes endgame for the
industry, after years of consolidation that has already wiped out
many of the regional players that were once prominent. Any of the
deals would get tough scrutiny from the Justice Department as well
as a gauntlet of state regulators, experts said. Federal antitrust
authorities would examine local-area market share in segments such
as Medicare Advantage as well as the effects on doctors and
hospitals, said Tim Greaney, a professor at Saint Louis University
School of Law.
Todd Moore, chief executive of Alliance Bank Central Texas, in
Waco, is alarmed at the prospect of insurance mergers. The
55-employee bank last year had five insurers battling for its
business, which it shops out annually to ensure competitive rates.
Now he is worried about losing some of the options. If there are
fewer choices, "I think we'll end up with a worse product, at
higher cost," Mr. Moore said.
To gauge how potential insurer deals might change the
competitive landscape, the Journal analyzed June enrollment records
released by the Centers for Medicare and Medicaid Services for
Medicare Advantage, the private-insurer version of the federal
program for the elderly and disabled.
The approximately 180 counties where the Journal found that a
combined Aetna-Humana would newly hold at least 75% of Medicare
Advantage customers are mostly in the Midwest and South. In
Sedgwick County, Kan., all but about 400 of the 15,000 consumers in
the program would be covered by the combined company, the data
show.
About 41,000 Medicare Advantage enrollees live in Jackson
County, Mo., which includes part of Kansas City. Aetna and Humana
cover about 33,000 of them. Most of those Aetna covers there are in
plans it acquired two years ago by buying Coventry Health Care
Inc., in the last big takeover in the industry.
John Gorman, a consultant to the health-care industry on
Medicare issues, said that analyses such as the Journal's are a
first step in any insurance-merger due-diligence process. He said
antitrust regulators would look closely at locations, but the
overlap between Aetna and Humana wouldn't likely be "enough to
torpedo the deal; you may see some divestments, but not a mushroom
cloud."
Jackson County, Mo., resident Brad Teachman said he relished the
relatively broad options available when he turned 65 and shopped
for a Medicare plan last year. " I like the competition," he said.
Mr. Teachman said he worries an insurer that was too powerful could
lean heavily on doctors.
There are at least 271 U.S. counties where UnitedHealth and
Aetna each have 10% or more of Medicare Advantage membership.
In some cases, it is far more. In Bergen County, N.J., near New
York City, a UnitedHealth-Aetna merger would leave 90% of
membership with a single company. In St. Louis, a combined company
would cover about 60% of the roughly 70,000 members of Medicare
Advantage plans.
A UnitedHealth-Aetna deal would result in at least 68 more
counties where the combined company had at least 75% of the
Medicare Advantage customers. There are already many U.S. counties
where a single insurer has at least 75% of the Medicare Advantage
business, the Journal found.
The Journal also looked at federal and state information
reflecting insurance offerings through the health-law exchanges, or
marketplaces. Arizona, Florida, Georgia, Missouri, Ohio and Texas
all include at least four of the five biggest publicly traded
insurers. In Missouri, all five offer plans in at least some
counties. Cigna and Anthem don't share any exchange
territories.
"Where the reduction in competitiveness plays out is different"
with different potential deals, said Michael Z. Stahl, a senior
vice president at insurance agency HealthMarkets Inc. That firm, a
national seller of Medicare Advantage and individual plans, has
done an internal analysis of various scenarios and is worried about
the impact on some locations, Mr. Stahl said: "No one would go to
an ice-cream shop that only serves vanilla."
The health-insurance combinations could also change certain
employer insurance markets, according to 2013 data compiled by the
Kaiser Family Foundation.
For instance, in New Hampshire, Anthem holds a majority of the
business among larger, fully insured employers, meaning those that
aren't "self-insured" but pay premiums to insurers. A tie-up with
Cigna, the No. 3 insurer in that segment in New Hampshire, would
give the combined company about two-thirds of the local market.
The data show that in Texas, a UnitedHealth-Aetna merger could
yield a powerful rival -- holding about 34% of the market -- to the
dominant Health Care Service Corp., parent of Blue Cross and Blue
Shield of Texas, with around 44% of the fully-insured
large-employer market.
The potential deals could trim the number of insurers with the
national reach to bid for the business of big companies with
offices around the country. "The bottom line is, our reaction is
concern" about the potential for mergers among top insurers, said
David Lansky, chief executive of the Pacific Business Group on
Health, a group for employers.
Access Investor Kit for Aetna, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US00817Y1082
Access Investor Kit for Cigna Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US1255091092
Access Investor Kit for Humana, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US4448591028
Access Investor Kit for UnitedHealth Group, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US91324P1021
Subscribe to WSJ: http://online.wsj.com?mod=djnwires