Last week, the California Department of Managed Health Care approved the merger of Aetna and Humana. The move seemed unlikely after a hearing at which DMHC Director Shelley Rouillard expressed skepticism about how the deal could benefit consumers, noting especially Aetna’s history of serial unreasonable rate hikes ($39 million in excessive rates in just 8 months).
Rouillard required concessions to mitigate the damage - but they will fail to protect consumers from higher costs, reduced benefits and less competition.
One of the worst examples: Aetna promises to minimize future rate increases. Yet part of that agreement says “if” Aetna imposes unjustified rate increases, the company has to wait six months before imposing another one. Instead of a commitment for no future unjustified rates, DMHC explicitly accepts unjustified increases as long as they only happen twice a year. That is not a recipe for controlling health care costs.
Rouillard failed to consider the real world fallout of actual health insurer mergers – including Aetna’s own merger with Prudential in 1998. A study of the Aetna-Prudential merger in 1998 revealed an almost immediate 7 percent hike in premiums, cut jobs and wages, reduced payments to healthcare providers and no quality improvements.
No matter what grand promises health insurers make when seeking a merger, post-merger rates go up, benefits go down and insurers never pass on savings to consumers.
California Insurance Commissioner Dave Jones, on the other hand, urged the U.S. Department of Justice to reject the Aetna-Humana merger, and that of Anthem-Cigna merger as well.
From Commissioner Jones:
The Aetna-Humana merger will result in even greater consolidation of health insurance markets where there already is not enough competition. Seniors will be especially impacted as the merger will make the combined Aetna-Humana the largest provider of Medicare Advantage by far in most markets across the country. Aetna and Humana were unable to reliably document their claims of savings associated with the merger. When I asked them directly, the Aetna and Humana executives declined to make a commitment to pass on the alleged savings to consumers with lower prices.
Anthem executives testified that they expect the merger to result in $2 billion in efficiencies, but when questioned directly by Jones to provide supporting evidence for the $2 billion claim, Anthem provided only vague, speculative, and impossible-to-verify assertions. When asked by Jones if Anthem would guarantee that the savings will benefit consumers with lower prices, Anthem declined to commit to pass any savings onto consumers through lower prices. Commissioner Jones concluded consumers will not benefit from the Anthem and Cigna merger.
The U.S. Department of Justice and the Federal Trade Commission have shown themselves willing to apply the nation’s antitrust laws when mergers threaten consumers, competitors and the marketplace. Last year, antitrust fears quashed the proposed telecommunications mega-mergers of Comcast and Time Warner, and AT&T and T-Mobile. The companies’ past failures to live up to the terms of their merger agreements (see more on Comcast and AT&T) were a big part of their rejection by the Administration.
Will DMHC get it right on Anthem, which post-merger would leapfrog Kaiser to become the largest insurance company in the state?
