On July 21, U.S. Attorney General Loretta E. Lynch announced that the Department of Justice would take action to block the mergers of Aetna’s purchase of Humana, and Anthem’s purchase of Cigna. And most of us will say they made the right call.
The four heath insurers involved in the acquisitions are 4 of the top 5 national health insurers. If they merge, the “Big 5” becomes the “Big 3”, which is likely to have costly consequences for consumers. In the announcement, Lynch made it clear why the DOJ is suing to block the merger:
“If allowed to proceed, these mergers would fundamentally reshape the health insurance industry. They would leave much of the multi-trillion dollar health insurance industry in the hands of three mammoth insurance companies, drastically constricting competition in a number of key markets that tens of millions of Americans rely on to receive health care.”
“Now, these mergers may increase the profits of Aetna and Anthem. But they would do so at the expense of consumers, employers and health professionals across the country, inflicting costs that cannot be measured in dollars alone.”
The health insurance companies involved disagree with the DOJ’s decision. Aetna and Humana released a statement saying they plan to defend their acquisition. They also feel that “a combined company is in the best interest of consumers.”
Cigna seemed a little unsure of their future when they released their announcement stating, “In light of the DOJ’s decision, we do not believe the transaction will close in 2016 and the earliest it could close is 2017, if at all.”
Higher Premiums, Lower Benefits
But it is well known and documented that insurer mergers are more likely to harm consumers and taxpayers. With mergers come less competition, and with less competition come higher premiums and reduced benefits.
In areas where Aetna and Humana are in competition, Aetna’s annual premiums are lowered by up to $302, and Humana’s by $43. If the merger takes place, you may see premiums rise by even higher than those amounts.
Studies of the effects of past mergers, like Aetna and Prudential Healthcare in 1999, find that the merger was responsible for increased premium prices. Because of the merger, by 2007, premium prices were 7 percent higher than they would have been without the merger.
Look at the airline industry. They know all about mergers. Remember when Delta acquired Northwest, United merged with Continental, and American Airlines bought US Airways? As a result, we saw ticket prices soar, seat capacity drop, and an increase in fees for luggage, reservation changes, and more.
However, raised prices in the healthcare industry have a much more harrowing effect on more than just the pockets of consumers. Higher premiums may mean that people are not able to afford the medicines or procedures needed to maintain their health. In some cases, these raised prices are literally the difference between life and death.
Breaking the Healthcare Merger Wave
There is a rise of consolidation within the healthcare industry. 2015 saw a record-setting year for mergers and acquisitions. It is not just health insurers. We are seeing a large number of hospital acquisitions and pharmaceutical consolidations as well.
Health insurers feel the need to merge so they can increase their leverage against the growing hospital systems. Both, hospitals and health insurers, are merging with other companies in order to gain more market power, which will lead to higher corporate profits at the consumer’s expense.
The government has to continue to take action against large companies looking to monopolize markets and raise prices for consumers. And it seems like the government it ready to do just that.
Lynch ended her statement with, “When the facts lead us to conclude that a merger will reduce competition, restrict choice and harm consumers, we will not hesitate to intervene. We will not shy away from complex cases. We will protect the interests of the American people.”