The CEOs of Aetna and Anthem defended their respective multi-billion dollar merger plans before a Senate Judiciary subcommittee this week, hoping to assuage concerns that the deals to consolidate Aetna and Humana and Anthem and Cigna would lessen competition and drive up costs.
Aetna has proposed acquiring Humana for $37 billion, while Anthem wants to buy Cigna for $54 billion.
It's up to the Department of Justice to determine whether the mergers violate antitrust laws.
Mark T. Bertolini, chairman and CEO of Aetna in Hartford, Connecticut and Joseph R. Swedish, president and CEO of Anthem in Indianapolis, argued before a Senate Judiciary Committee on Antitrust, Competition Policy and Consumer Rights on Tuesday that local insurance plans would keep the industry competitive.
Attorney Rob Fuller of Nelson Hardiman in Los Angeles said he does not believe the mergers will rise to the level of antitrust violations and agreed local insurance plans will allow competition, much as strong regional airlines such as Southwest and JetBlue provided competition to the big three carriers during airline consolidation.
"I do anticipate the mergers will be approved, with conditions," Fuller said. "Right now, antitrust laws are not set up to deal with health plans. I do think there will be a regulatory response." Fuller works with merger and acquisition cases and is a former chief operating officer for Downey Regional Medical Center in Los Angeles.
Anthem and Cigna completely overlap, he said, while Aetna and Humana have separate markets as the latter deals with Medicare Advantage plans.
He believes the mergers would have a negative effect on hospitals which would be left with less negotiating power.
"Even if health plans are successful in driving costs down, I am very skeptical whether the savings will be passed along to premium payers. This is not a judgement, they're all for-profit companies. The purpose of the mergers is to maintain profitability," he added.
Sen. Al Franken, D-Minnesota, asked the CEOs on Tuesday if any savings from their merger deals would be passed onto consumers.
Neither man gave a resounding "yes" but both said there would be savings.
Swedish said while Anthem has contracts in 19 states to serve Medicaid beneficiaries, Cigna's footprint is limited to just a number of counties in two states, resulting in both companies offering Medicaid Managed Care services in only six shared counties in Texas.
"In addition to the stronger than-ever consumer protections now in place, health plans' rates and operating margins are more regulated than ever before," Swedish said.
Shared competencies will enable the combined company to operate more efficiently, reducing operational costs, Swedish said.
Bertolini said the Aetna acquisition of Humana would bring about two complementary companies.
"Aetna has traditionally been a large commercial health insurance company while Humana has been a large Medicare company known for its leadership and expertise in Medicare," Bertolini said. "After the acquisition, Aetna will have a product portfolio balanced more evenly between commercial and government products."
Consumers would have a broader choice of products and more affordable options, he said.
Aetna and Humana have already demonstrated success in lowering costs as well as improving quality through alternative payment models, he said. In 2013, Humana experienced a 19 percent overall cost improvement for Medicare Advantage members who were treated in an accountable care setting compared with members who were treated by other providers, he said.
The mergers would reduce the number of major health insurance companies to three. There are currently five: Aetna, Humana, Anthem, Cigna and UnitedHealth Group.
"I believe in vigorous enforcement of our antitrust laws," said Sen. Chuck Grassley, R-Iowa, Chairman of the Senate Judiciary Committee.
Sen. Patrick Leahy, D-Vermont, ranking member of the committee said, "I have long been troubled that the health insurance industry has a special, statutory exemption from the antitrust laws. There is no justification for the health insurance industry to be exempt from laws that prohibit price fixing and other anticompetitive practices."
AHA President and CEO Rick Pollack spoke before the Senate Judiciary Committee Tuesday and also testified on Sept. 10 before a House Judiciary Committee panel.
At both times, he made a distinction between the partnerships, mergers and acquisitions taking place within hospital systems and the consolidation proposed in the health insurance industry.
"For financially struggling hospitals, finding a partner can make all the difference," Pollack said in a release. "There is no reason to believe that allowing these insurers to become even larger – and more immune from competitive forces – would change their incentive to sit mostly on the sidelines and reap the considerable financial rewards for providers' innovation."
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The American Medical Association said the proposed mergers would exceed federal antitrust guidelines designed to preserve competition in as many as 97 metropolitan areas within 17 states.
AMA President Steve Stack said, "If a health insurer merger is likely to erode competition, employers and patients may be charged higher than competitive premiums, and physicians may be pressured to accept unfair terms that undermine their role as patient advocates and their ability to provide high-quality care."