Is Aetna Lazy, or just Greedy?

The Department of Insurance held a hearing this morning into the proposed $37 billion merger of health insurance giants Aetna and Humana.

As the 3rd and 5th largest health insurers in the nation, these  companies are far beyond the size when a merger could improve economies of scale. Instead, Aetna is seeking to expand its market share the lazy way by buying up competitors instead of gaining customers the old-fashioned way: by having the best product.  If the merger proceeds, Aetna will have even less incentive to make its product better.

Aetna has promised the merger will deliver $1.25 billion in “synergies” – merger-speak for savings - by 2018.

But Aetna can’t be trusted to deliver on savings to consumers when it consistently refuses to charge fair premiums to begin with.

The health insurer has imposed seven excessive and unjustified rate increases on more than 100,000 employees of small businesses since 2013. That includes several increases amounting to $68 million in lost savings for consumers in 2015 alone, according to the Department of Insurance and DMHC.

The Department of Managed Healthcare called it “price-gouging” last summer when Aetna imposed a 21% rate increase, despite the Department’s finding it was unreasonable, using over-inflated projections of future medical costs and refusing to provide data to justify its pricing as required by law.

Last year, after Blue Shield of California was caught red-handed lying to regulators, the DMHC went so far as to have the insurer sign a written commitment that the company would not tell regulators the truth.

But a pinky swear isn’t enough to make California consumers secure in the idea that any of Aetna’s promises will materialize.

In response to the Insurance Commissioner’s request, Aetna said it would provide an accounting of just how those $1.25 billion in savings will trickle down to consumers. However, Anthem and Cigna promised the same accounting at a March Department of Insurance hearing into their proposed merger, and none of that information has yet been presented to the public.

Considering the track record of health insurance mergers, we will likely never see it.

Instead, all the evidence points to rate hikes and benefit reductions in the wake of mergers. A study presented to Congress on Aetna’s 1998 merger with Prudential found an almost immediate 7 percent hike in premiums, lost jobs and cut wages, reduced payments to healthcare providers and no quality improvements.

At today’s hearing, Consumer advocates testified to Aetna’s dismal compliance record with state regulations meant to ensure consumers get the health coverage they were promised. Aetna and Humana executives would not commit to protecting consumers from paying for the $139 million cost of executive payouts as a result of the merger.  And the results of a study were presented that found competition will be reduced in the Medicare Advantage market in eight California counties -Fresno, Kern, Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura - if the merger were approved.

The Department – and the U.S. Department of Justice – should reject the Aetna-Humana deal.  If the Aetna-Humana and Anthem-Cigna mergers are approved, the nation’s top five insurers will be reduced to three that are dramatically larger than their closest competitors. There is no scenario where less competition between market giants results in lower costs or better care for consumers.

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