The fate of two insurer mega-mergers could rest on one key argument

Topics: Insurance, Health Plans/Insurance Companies, Legal Issues

By Joe Infantino, senior staff writer

Whether the court considers Cigna and Humana to be "innovative" insurers could determine whether their proposed mergers with Anthem and Aetna, respectively, are allowed to close, some experts say.

The Department of Justice in July filed lawsuits challenging the mergers. DOJ cited concerns about the effects of the proposed Anthem-Cigna merger on commercial networks that serve large employers, local commercial markets, and markets of individual plans sold through the Affordable Care Act's (ACA) insurance exchanges. Meanwhile, DOJ said the potential Aetna-Humana deal could harm the Medicare Advantage and ACA exchange markets.

The proposed deals, which have been pending for more than a year, are set to go to trial within a month of each other, and many experts are watching to see how the outcomes could affect the industry and consumers. The first trial date—for Anthem and Cigna—is set for Nov. 21.

The type of competitor matters

If both deals go through, the nation's five largest health insurers would be consolidated into three companies. Generally, consumer advocates and providers say that consolidation would significantly limit insurance options in parts of the country.

The American Medical Association (AMA) in a recent analysis argued that the Anthem-Cigna merger would reduce competition in 121 metropolitan areas across 14 states, while the Aetna-Humana deal would limit competition in 57 metro areas across 15 states.

"The Anthem-Cigna and Aetna-Humana mergers would significantly compromise market competition in the health insurance industry and threaten health care access, quality, and affordability," said AMA President Andrew Gurman in a statement.

But market size alone may not be enough to fight the mergers, said Tim Greaney, co-director of the Center for Health Law Studies at Saint Louis University School of Law.

The type of competitor that would be eliminated is just as important as the number of insurers in the marketplace, he said.

DOJ in its lawsuit is arguing that the mergers would erase two "innovative competitors"—Cigna and Humana—from the industry. In antitrust terms, these competitors are called mavericks.

"Mavericks tend to be more robust and innovative," Greaney said. They're "being aggressive on price and shaking up the market."

In the insurance industry, Greaney said mavericks like Cigna and Humana offer:

  • Arrangements with providers that promote better value-based purchasing;
  • Creative network designs, such as tiered networks; and
  • Unique products, such as wellness programs.

"There's precedent that says when a merger involves two parties and eliminates the maverick, the harm is even greater than the size would indicate," he said. "The idea is that it's even worse when the one that's being taken over is the one that's kept the others in the market a little more sensitive to price and quality."

That background could make the question of "innovativeness" one of DOJ's strongest arguments.

But insurers say mergers foster more efficient competition

Insurers counter that greater size will actually foster competition and reduce costs for consumers. They argue that in the health insurance business, more scale means more bargaining power and, in turn, potentially better prices for patients.

"They're claiming consumers are going to be better off, saying this merger will allow them to compete more effectively," said George Hay, a professor of antitrust law and economics at Cornell University.

"There's an argument that if you have a dominant hospital, perhaps a dominant insurer banging up against them will be good for consumers," Greaney said. "In other words, they'll be able to negotiate lower prices and lower premiums."

That's how America's Health Insurance Plans (AHIP) defended the deals when they were first announced. At the time, Beth Leonard, executive vice president of public affairs at AHIP, said that while insurers aim to "negotiate[e] lower medical bills," their efforts to get "better value for patients [are] being undercut by years of anticompetitive hospital consolidation that have forced patients to pay higher health care costs, increased premiums, and limited their health care choices."

But Greaney says the benefits of negotiating power do not always make it to consumers' pockets.

"There is economic evidence that large insurers do get somewhat better prices out of hospitals they bargain with, but it also shows that they don't pass it along to consumers in the form of lower premiums because they themselves have market power," he said.

Therefore, to boost their defense in court, the insurers need to demonstrate that innovation won't die with Cigna and Humana and that consumers will reap the benefits.

"They really need to come up with and demonstrate plans for networks and protocols that are going to provide better care at lower cost," Greaney said.