Opposing Views On Two Pending Insurance Deals
Two big insurance mergers. Two different regulatory takes.
That is what is occurring in California, as the state Department of Insurance tries to block the merger between Anthem and Cigna, while the Department of Managed Health Care has approved another merger between Humana and Aetna.
The California Department of Insurance and Commissioner Dave Jones has asked the U.S Justice Department to intervene in the pending merger of Anthem and Cigna. That $50 billion deal, announced last year, would create an anti-competitive market for insurance in California, according to Jones. The Department of Insurance cited a market review concluding that post-merger, Anthem would have a minimum 50% market share in 28 California counties and a minimum 40% share in another 38 counties. The effect of the merger, the agency concluded, “will negatively impact California consumers with likely reductions in access, quality of care, and affordability of health insurance.”
Jones and his department held a public hearing on the merger in March. Jones noted that representatives for Anthem and Cigna were vague on their claim the deal would save the state's consumers $2 billion.
"Anthem and Cigna failed to provide details to support their claim of $2 billion in savings and they refused to guarantee consumers and businesses will see the benefit of any potential savings in reduced prices," Jones said. "More competition in California's consolidated health insurance markets is needed, not less. Competition helps restrain prices, provides choice, and improves quality. The Anthem and Cigna merger reduces competition in a market that is already dominated by just four health insurers. It will likely result in reducing consumers' choices, increased prices, and lower quality care."
Not long after Jones made his announcement, Anthem issued a statement saying that 12 state attorneys general had signed off on the deal. "Since Anthem announced our acquisition of Cigna in July 2015, we have been in ongoing dialogue with the Department of Justice and state regulators regarding the compelling combination of our two companies to increase consumer access to high quality, affordable healthcare," the Indianapolis-based insurer said.
But Jones, who has no power to block the deal in California, is not alone in expressing such doubts. The Wall Street Journal has reported that the Justice Department has evinced skepticism of its own and may take steps to block the deal.
“A combined Anthem and Cigna would be a private sector juggernaut,” Bloomberg columnist Max Nisen observed earlier this week. “Anthem was already the biggest private health insurer in the country by enrollment, at about 31 million at the end of 2015. Adding Cigna would bring it to nearly 45 million.”
By contrast, Nisen believes another pending merger between insurers Aetna and Humana – both of which have much smaller footprints in California than the other insurers -- “raises fewer regulatory red flags.”
Indeed, that appears to be the case given the California Department of Managed Health Care signed off on the deal last week, with some conditions. They included keeping premium increases for the combined HMO small group book of business “to a minimum,” as well as investing $49.5 million in the state, including $23 million to expand a service center in Fresno to provide the economically distressed community more jobs, $16.5 million to support pay-for-performance programs, and $9 million to beef up dental and senior services.
“The department’s primary focus in reviewing mergers is to ensure compliance with the strong
consumer protections and financial solvency requirements of the Knox-Keene Act,” said DMHC Director Shelley Rouillard. “The department’s conditions on this merger will help control health care costs, increase access to care and improve quality of care. Aetna also has committed to help improve
California’s health care infrastructure, and invest in programs that will serve the vulnerable
populations enrolled in these plans.”
Consumer Watchdog, the Santa Monica-based advocacy group, blasted the DMHC's approval. It noted that the DMHC essentially allowed both insurers to obtain significant premium increases.
“California’s health insurance market is now so consolidated that any merger will reduce competition. Small concessions are no longer good enough to justify a merger deal,” said Carmen Balber, Consumer Watchdog's executive director. “Aetna and Humana’s inability to show consumer savings, and refusal to make significant commitments to not cancel plans or end unjustified rate increases, should have nixed the deal.”
But Balber did praise Jones' actions. "Anthem cannot provide proof of savings, or any benefits to consumers from this merger, because there will be none if the merger is approved," she said.
