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As health insurers merge, consumers' premiums are likely to rise

As leading health insurers scramble for market share through a series of multibillion-dollar mergers, consumers are no doubt wondering if their premiums are bound to skyrocket.

Short answer: Probably.

"That's what usually happens when you have less competition," said Erin Trish, a researcher at USC's Schaeffer Center for Health Policy and Economics. "At the same time, though, consolidation among insurers could mean a stronger position in negotiating lower rates with hospitals."

The question, she said, is whether insurers would pass along any savings to policyholders. Past mergers among insurance companies suggest that consumers seldom benefit.

"When insurers merge, there's almost always an increase in premiums," Trish said.

Ironically, Obamacare had anticipated the negative effects of runaway capitalism with a safeguard that critics branded as socialism — the so-called public option, a government-run insurance plan offered alongside private plans.

Private insurers lobbied fiercely to prevent a public option from ever seeing the light of day. The industry's leading trade group, America's Health Insurance Plans, argued that the existing insurance system would be jeopardized.

"We need to build on that system rather than put it at risk with a government-run plan," a spokesman for the group said as the Affordable Care Act took shape in 2009.

Thanks to business and ideological interests triumphing over economic considerations, a public option fell by the wayside.

Some experts say that, with fewer private insurers and rising rates, we're going to regret not having a public option as part of the mix.

"It would have protected consumers by giving them another choice," said Mireille Jacobson, an associate professor of economics and public policy at UC Irvine. "Private insurers would have been more reluctant to raise rates."

As it is, many analysts are predicting bigger premium increases next year in California and nationwide. And all the mergers and acquisitions will probably add to that.

Aetna is pursuing a $35-billion purchase of Humana. Centene is acquiring Health Net, California's fourth-largest insurer, for $6.3 billion. Wall Street analysts say these deals put pressure on Anthem to wind up talks with Cigna on a merger.

The driver for this activity is Obamacare's effect in creating millions of customers in the individual-insurance and Medicaid markets. Insurers view this flood of new business as a once-in-a-lifetime opportunity.

Last week, Sen. Majority Leader Mitch McConnell had three words for the American people: Told you so.

"As I predicted during the [healthcare reform] debate five years ago," he said, all this corporate activity is "the inevitable result of Obamacare's push toward consolidation as doctors, hospitals and insurers merge in response to an ever-growing government."

Had he really made that prediction, it would have been an insightful observation about how the Affordable Care Act would play out.

But McConnell never said anything of the sort. His doomsday scenarios focused primarily on the sound-bite-ready threat of a "government takeover of healthcare" in the form of the public option.

Michael Brumas, a spokesman for McConnell, emailed me a pair of quotes from 2009 that he said were proof that the Republican leader warned of Obamacare causing widespread consolidation. Neither supported McConnell's contention.

In one, he cited the need to "promote more competition in the private insurance market." In the other, he lamented the "disastrous results" of changes in 1994 to the individual-insurance market in his home state of Kentucky.

What McConnell neglected to mention was that even though Kentucky lawmakers had required that insurers cover everyone regardless of health, they didn't include a mandate that everyone have insurance, which Obamacare does.

It's an important distinction. Without such a mandate that healthy people also join the risk pool, the only ones who will sign up for coverage will be the sick, which is what happened in Kentucky. As insurers' costs grew, premiums soared.

Consolidation among insurers under Obamacare probably was inevitable, experts said. Bigger is better, from an insurer's perspective, with millions of new customers entering the market.

However, under the current spate of mergers, there's nothing to prevent higher rates being imposed on consumers. With a public option, private insurers would have faced continued pressure to keep premiums down.

"They'd still have to compete," said Teny Shapiro, a professor of economics at Santa Clara University. "The public option would have been another choice that people had access to."

Paul Ginsburg, a professor of medicine and public policy at USC, said that had the public option survived, "it would have protected consumers by pushing the effects of consolidation onto providers."

In other words, private insurers would be reluctant to raise rates, so they'd instead use their market power to offer lower reimbursements to hospitals. Those hospitals, in turn, would respond by cutting costs, which would lower patient bills.

Though the experts said revisiting the idea of a public option is warranted in light of current mergers, they acknowledged that it's not politically feasible.

So Americans face the prospect of an even unfriendlier marketplace for health coverage, with fewer choices and higher rates. Comparisons to the phone and cable markets seem apt.

And I imagine that if most people had the choice of receiving phone or cable service from a lower-priced, taxpayer-funded provider, private telecom companies would bend over backward to compete on price, quality and innovation.

A pleasant fantasy, no?

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to david.lazarus@latimes.com.

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