Aetna CEO Mark Bertolini and Anthem CEO Joseph Swedish told senators Tuesday that local and national health insurance markets would remain competitive if the federal government approved their pending transactions. Other witnesses expressed sharp skepticism.
The Senate Judiciary Committee's Antitrust subcommittee, led by Sens. Mike Lee (R-Utah) and Amy Klobuchar (D-Minn.), held a much-anticipated hearing roughly two weeks after the House held a similar one. But the Senate's grilling put the spotlight directly on the CEOs who are orchestrating the two largest health insurance mergers in history.
Aetna is the process of acquiring Humana in a deal valued at $37 billion, a move that Bertolini told lawmakers was undoubtedly about enhancing its Medicare Advantage position. Anthem, the largest Blue Cross and Blue Shield affiliate in the country, is buying Cigna Corp. for $54.2 billion, including debt. That deal would boost Anthem's commercial business, especially among large, self-insured employers.
The combined Aetna and Anthem companies would cover roughly 90 million Americans, or almost 30% of the population. Including UnitedHealth Group, the largest insurer by revenue, the “big three” insurers would cover about 135 million lives. Each of the insurers would be bigger on a revenue basis than many other conglomerates, including technology giant Microsoft, consumer products company Proctor & Gamble and any of the large national banks.
The high stakes of the deal were felt during the pinnacle of the hearing, when Sen. Al Franken (D-Minn.), a member of the subcommittee, asked whether the deals will ultimately help consumers. “Do you commit passing along savings to policyholders?” Franken asked each executive.
Bertolini and Swedish hedged a bit on their responses, and Franken asked the question multiple times. “Our savings will be passed along in the price of our product,” Bertolini said.
Swedish added, “We are committed to driving affordability for all of our customers.”
“We could have gone quicker if those answers were yes,” Franken quipped, as he ran out of time to ask more questions.
Leemore Dafny, a health economist at Northwestern University and a former regulator at the Federal Trade Commission, testified that health insurer mergers rarely, if ever, lead to lower premiums for consumers. She and colleagues conducted a retrospective analysis of the 1999 merger between Aetna and Prudential Healthcare, finding that the deal mostly translated into bulked-up negotiating power over hospitals and doctors.
“The merger led to reduced payments to providers, but the cost savings weren't passed through,” Dafny told Senate members. “We are paying a premium on our premiums because of limited competition.”
But Bertolini and Swedish defended their pursuits. Both executives said competition is alive and well, invoking the name of tech darling Oscar Insurance Corp., the New York City-based health insurer that launched a few years ago and is expanding into new markets.
However, Oscar is still a relatively small company that predominantly operates in the individual market, which is much smaller than the employer market. And many other new health plans, such as the Affordable Care Act's co-ops, have struggled or closed, with experts calling the health insurance industry one of the most difficult to enter due to high capital requirements and the tough task of building provider networks.
Still, Bertolini said combining with Humana would give Aetna the ability to scale its Medicare Advantage products more quickly than if it did it alone. He also remarked that many hospital systems are entering the Medicare Advantage market, a trend seen in North Carolina and elsewhere, which will force insurers to keep building attractive products like $0 premium plans. “The market competes on price and choice of doctor,” Bertolini said. “This will not change.”
Swedish stressed that the mergers must be viewed from the local level, adding that Anthem and Cigna have overlap in few markets. However, regulators will likely take a close look at the combined employer business in several states, including Georgia, Indiana, New Hampshire and Virginia. “Anthem and Cigna together means better health insurance for more people,” Swedish said.
Paul Ginsburg, a health economist at the University of Southern California, said the Aetna-Humana and Anthem-Cigna marriages could spur the healthcare delivery system to move more quickly toward value-based payment models and away from the current fee-for-service system. Hospitals, doctors and payers have been testing accountable care organizations, which put providers at risk financially for good health outcomes, and bundled payments, which pay lump sums for specific procedures.
“I see some important potential upsides of the mergers we're discussing today,” Ginsburg said. “The mergers are likely to hasten the movement to alternative payment models.”
Hospitals have been the most vocal critics of the insurance mergers. The American Hospital Association sent letters to the U.S. Justice Department this summer, arguing that the Aetna and Anthem deals will reduce competition in a slew of metropolitan markets. Rick Pollack, CEO of the American Hospital Association, reiterated that theme Tuesday.
George Slover, senior policy counsel at Consumers Union and a former antitrust regulator at the DOJ, said consolidation of any sort has proven to do little to help patients, who are often caught in the middle of two large businesses fighting over payment rates. “Too much concentration among hospitals or doctors or insurers can undermine the system and harm consumers,” Slover said. “It looks like too many markets are affected here,” he added, referring to both mergers.
Justice Department antitrust officials are reviewing the deals simultaneously. Officials have already asked Aetna and Humana for more information and delayed the deadline to rule on their deal. Aetna's and Anthem's transactions aren't expected to receive clearance until next summer at the earliest.