Health insurance giants are looking to team up, but experts and advocates warn the deals would lead to higher healthcare costs for consumers.
Over the weekend Cigna rebuffed a third takeover bid from its rival Anthem. Cigna called Anthem’s latest offer of about $47 billion inadequate. If the deal goes through — Anthem doesn’t show any signs of backing off — it would create the largest insurer in America.
However, Cigna and Anthem are actually playing catch-up as other major insurance giants are looking to merge, trying to gain leverage over providers that also have started to consolidate at a quickening pace.
Aetna tried to take over Humana this past weekend, but so far the insurer hasn’t responded to the bid.
The drive to consolidate is fueled in response to mergers among doctor practices and hospitals that have occurred over the past few years. For instance, in 2013 the Catholic Health East and Trinity Health hospital systems merged, creating a major system of hospitals in 21 states.
Part of the reason for the mergers is that providers want to gain access to electronic health records to meet federal regulations but can’t afford it on their own.
Because of the mergers, hospitals have more leverage in negotiating payments with insurers.
“Insurers in a lot of markets are unable to strike good deals with providers,” said John Holahan, a fellow at the Urban Institute’s Health Policy Center.
So they seek mergers and takeovers to get more leverage to negotiate better deals with providers.
The impact on consumers depends on how much competition is in their area, with urban areas likely to have more competition and rural areas less.
“There are markets where there are a lot of insurers and places where there aren’t many at all,” he said.
With more competition, an insurer generally wouldn’t have as much power to set the prices they want, he said. However, in areas where there is little to no competition they would have more power over providers.
“They could price accordingly and do pretty well. That may not be a good thing,” Holahan said.
The wave of potential deals runs counter to the goals of Obamacare, which sought to increase competition in the insurance market. While the law has provided coverage to millions of uninsured, it is not clear how the insurance markets will settle.
Advocates say the mergers would definitely be bad for consumers.
“More often than not, consolidation increases costs and reduces options for consumers, and we believe this would hold true for the insurance market,” according to a recent letter from the American Academy of Family Physicians to the Federal Trade Commission.
The group was already concerned about a lack of competition in some areas. It referred to a 2014 report from the American Medical Association that found a single insurer had at least half the market in 17 states.
“In our opinion, these numbers suggest that a lack of competition clearly exists today and speaks loudly against any further consolidation in the health insurance industry,” the letter said.
The main insurance lobbying group, America’s Health Insurance Plans, said the opposite is true: Hospital and practice consolidation has led to higher healthcare costs.
The group pointed to recent comments from FTC Commissioner Edith Ramirez, who called provider consolidation a “worrisome trend.”
Holahan said that just because a hospital or insurer becomes bigger doesn’t “foreclose the possibility of new entrants coming in, but it does make it harder.”
