Health insurer mega-mergers may go through, but only in certain markets

This summer, the news was saturated with talks of mega-mergers among the big five health insurers. In early July, Aetna agreed to buy Humana, and Anthem inked a deal with Cigna that same month.

The number of insurers currently in the market puts a type of equilibrium in place. But as the number of insurers has the potential to decrease due to mergers, the equilibrium will be upset.

Mark Rust, managing partner of the Chicago office of Barnes & Thornburg, is an expert in transactional and regulatory issues surrounding healthcare. In light of the recent focus on healthcare insurers, Mr. Rust has his own predictions regarding the mega-mergers and their implications on the broader healthcare market.

Mr. Rust particularly focused on the deal between Anthem and Cigna. "It raises a fundamental economic question that the antitrust enforcement has to answer: While it's obvious that this merger is going to have a big effect on competition, is that effect going to be good or is it going to be bad for the customer who pays?" he says. While the consolidation could raise prices for consumers, strengthening the insurers could also lower prices of care at hospitals and health systems. Numerous hospitals and health systems have grown exponentially and raised prices since the passage of the Affordable Care Act. Forming equally large and powerful insurers, which would give the insurers more clout at the negotiation table, may be one of the only ways to limit the prices the hospitals charge.

Nevertheless, this choice will affect more than just the consumer. Mr. Rust believes the decision to approve the Anthem-Cigna and Aetna-Humana deals will be a market-by-market experience. "The point is that there is not a binary choice between whether it will be allowed to happen or it won't," he says. Instead, he claims the mergers will be allowed in certain geographic marketplaces — but only those markets in which they're willing to divest some of their assets.

Although he does not have any predictions regarding specific marketplaces in which the mergers will be allowed, Mr. Rust stressed the fact that the delivery of healthcare is characterized by local markets. "I would be surprised if they just let both mergers go through without any caveats because ... healthcare is a uniquely local phenomenon," he says.

But the nationwide significance of healthcare also has an effect on the mega-mergers, according to Mr. Rust. He believes the insurers' choice to merge is an outgrowth of the ACA. "Everything about the ACA makes insurers confident that they are going to have a big customer base, but insecure about how they are going to deal with rising costs from a highly consolidated healthcare provider market," he says.

Now that the deals have been inked, the potential mergers must go through a rigorous review process with the Federal Trade Commission and the Department of Justice. While the antitrust agencies review the mergers, some have spoken out against the dangers of the potential deals. American Hospital Association President and CEO Rick Pollack recently urged the DOJ to intently scrutinize the mergers. In June, Becker's Hospital Review heard from five health system CEOs who shared their opinions on the mergers — and often the dangers of them. Despite pushback and a time-consuming review process, both the Anthem-Cigna deal and the Aetna-Humana deal are expected to close in the latter half of 2016.

Regardless of what the future holds for these four insurers, the result is sure to be unprecedented. "Should both of these mergers go through, it is a major event in the history of health insurance, and not a good thing for providers — especially small providers," says Mr. Rust.

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.