By Emily Curran, Georgetown University Center on Health Insurance Reforms

Health plan consolidation has been in the news lately. As the Department of Justice reviews proposed mergers between Aetna/Humana and Anthem/CIGNA (and recently gave the nod to the proposed merger of Centene/HealthNet), federal and state policymakers, advocates, and provider and employer stakeholders are also assessing the benefits and risks for health care consumers, including the potential for higher premiums.

CHIR’s own Sabrina Corlette appeared on C-SPAN’s Washington Journal last month to discuss implications of the possible mergers, while at least 26 state insurance regulators (including Connecticut, Florida, California and Virginia) are asserting their authority to examine – and potentially block – the proposed consolidations. Provider associations and consumer groups are generally weighing in against the mergers, arguing that the consolidation will increase premiums and lead to poorer service, while the insurers assert that the mergers will help them reduce administrative and provider costs, savings which could be passed onto consumers.

Who’s right? Late last month, the Alliance for Health Reform hosted a discussion, highlighting the potential impacts of the mergers across the industry. The panelists provided a useful range of views to help us better understand the context and future of the health insurance industry.

As an overview, Eric Schneider, senior vice president for policy and research at The Commonwealth Fund, reported that the largest four insurers in the industry now control over 80 percent of the market, with a significant number of states today considered concentrated. Schneider explained that consolidation in the provider market is also increasing. Though these mergers often result in highly concentrated markets, Schneider noted that federal policies that promote accountable care organizations (ACOs) actually encourage this type of integration. And while they can help improve care coordination and gain efficiencies, the larger the provider system, the stronger their market clout to gain higher reimbursement rates from insurers.

Thomas Greaney, professor and co-director at the Center for Health Law Studies, Saint Louis University School of Law, offered a perspective on the elements that the Department of Justice often considers when deciding whether a merger is legal. In particular, he outlined the types of harms that such mergers can generate, including:

1. Coordinated pricing – when sellers agree to buy/sell a product at a fixed rate;
2. Unilateral efforts – when competition is eliminated and the merged entity exercises total market power;
3. Monopsony – when one large buyer has the ability to drive down prices among many sellers, for instance, reducing prices paid to physicians below a competitive level; and
4. Potential competition – when a merger discourages new entrants.

Greaney stated that there is “[n]o question that provider dominance is the major source of cost concern in the country.” And while he noted that mounting evidence shows that larger insurers get better discounts from hospitals, he pointed out that these discounts often do not get passed onto consumers.

Lawrence Baker, professor of health research and policy at Stanford School of Medicine, focused on provider markets. Baker explained that there has been almost a doubling in the share of physicians that are practicing in larger groups of 100 or more. He has found that as practices become more concentrated—prices go up significantly. Baker also noted that there has not yet been meaningful evidence that integrated systems decrease utilization or spending.

But Bruce Vladeck, senior advisor, Nexera, Inc. (a hospital-focused consulting firm) noted that provider and insurance consolidation are not the same thing. In other words, findings that hospital consolidations have led to higher prices are not necessarily predictive of the impact of insurance company mergers.

Finally, Paul Ginsburg, chair in medicine and public policy at the University of Southern California, described the factors that motivate providers and insurers to consolidate. Ginsburg offered solutions to increase market competition, including the use of network strategies like narrowed and tiered networks, and investing in public and private exchanges. However, he noted that these solutions are not without challenges, such as meeting network adequacy requirements and addressing surprise balance bills.

Looking ahead, within the coming months the Department of Justice will determine the fate of these proposed mergers, and some state insurance commissioners may assert their authority to reject the mergers as well. If anything, however, the Alliance briefing demonstrated that there is a real lack of evidence regarding the likely impact of insurance company mergers on policyholders and purchasers. What is available suggests that consolidation tends to increase price. But there are clearly many unanswered questions about how to counter increased provider consolidation and foster competitive, high-quality markets.