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Health insurance CEOs vow mergers won't make marketplace less competitive

Health insurance CEOs vow mergers won't make marketplace less competitive
An exterior view of the Anthem headquarters in Indianapolis. (Aaron P. Bernstein / Getty Images)

Proposed mega-mergers between health insurance giants prompted by the Affordable Care Act won't harm the level of competition in the market, two chief executives pledged Tuesday to skeptical lawmakers.

The recent plans by Aetna Inc. to acquire Humana Inc., and by Anthem Inc. to buy Cigna Corp., have raised concerns over the economic impact that such mergers, which would eliminate two of the five largest insurers to create three companies, would have on consumers. The Justice Department is investigating the deals.

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In their attempt to convince senators of the mergers' virtues, the CEOs of Aetna and Anthem each said healthcare should be viewed within a local context and that the mergers would lead to robust competition without raising prices for consumers.

"Simply put, the combination of Anthem and Cigna will allow us to provide better health insurance to more people," said Joseph Swedish, CEO of Anthem.

"There would be no material change in the competitiveness of the commercial insurance market," said Mark Bertolini, CEO of Aetna.

However, some senators, including Richard Blumenthal (D-Conn.), expressed skepticism about the concentration of power in fewer hands. The mergers, Blumenthal said, appear to be more the "triumph of hope over experience."

He recalled Aetna's billion-dollar acquisition of Prudential Health Care in 1999. Leemore Dafny, a professor at Northwestern's business school, testified that the deal cut both jobs and wages in the locations where the two companies overlapped, as well as reduced payments to healthcare providers.

"There is no evidence that mergers have led to improved quality or more innovation," said Dafny, who noted that public data on such mergers is limited.

Senators from both parties raised concerns about how the deals would affect healthcare costs. According to a new survey, American workers saw their out-of-pocket medical costs jump again this year, as the average deductible for an employer-provided health plan grew nearly 9% to more than $1,000.

The American Hospital Assn., a powerful hospital lobby, has also challenged the consolidation plans. Richard Pollack, the group's president and CEO, testified that he was concerned about the possibility of rising prices and limited choices under an Aetna/Humana merger, especially for the millions of seniors who buy Medicare Advantage plans.

Furthermore, with Anthem's affiliation with the extensive Blue Cross and Blue Shield system, a merger with Cigna, he said, could all but eliminate competition and entrench the system's domination in nearly every state.

If the deals are approved, Pollack said, the top three insurers would cover 131 million people, or 40% of Americans with health insurance.

"We are very concerned that both deals could result in fewer choices for consumers, narrower networks and providers in what few choices remain and higher premiums and out-of-pocket costs," said Pollack.

United Health Group Inc., which would round out the top three largest insurers if the mergers proceed, did not participate in the hearing.

Sen. Mike Lee (R-Utah), chairman of the Judiciary antitrust subcommittee, said Tuesday's hearing was not about President Obama's landmark 2010 healthcare law.

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Since then, there has been a trend in hospital mergers. More than 70 deals have been announced this year alone, and 2015 is on track to surpass the 100 hospital transactions announced in 2014, according to research company Irving Levin Associates. Proponents of hospital consolidation say conslidation leads to cost savings and others believe the mergers are a response to healthcare reforms.

Some upsides to insurance mergers include reduced administrative costs, alternative payment models and investments in data and analytics to support providers, said Paul Ginsburg, a public policy professor at USC.

Twitter: @marcusehoward

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