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Aetna-Humana Merger: A Non-Stop Flight to Higher Premiums

By Melinda Reid Hatton
September 17, 2015

Insurance giant Aetna recently announced a proposal to acquire its Kentucky neighbor Humana, for $37 billion.[1] If the deal goes through, Aetna-Humana will become the nation’s largest Medicare Advantage Insurer.[2]

Among other promises, Aetna claims the deal will be good for providers and consumers because it will “strengthen the partnership between [them].” [3] Understandably, Aetna is vague on how it intends to make good on this promise of "partnership." That’s because eliminating competition for health insurance on this scale, particularly for seniors who are flocking to Medicare Advantage plans, will, if anything, tear down any slight hope for a “partnership.”

Medicare Advantage is popular among seniors particularly those just now enrolling in Medicare, because it typically offers extra useful benefits, like vision coverage, and helps to coordinate care among otherwise unconnected providers.[4]

Keeping Medicare Advantage affordable for seniors depends on robust competition among health plans. It hardly seems like a coincidence that benefits have narrowed and out-of-pocket costs have risen precipitously at the same time competition in Medicare Advantage markets has declined.

Providers aren’t’ the only ones likely to be concerned about losing this much competition for Medicare Advantage. The Department of Justice, which reviews insurance deals, sued to block Humana’s acquisition of health insurer Arcadian in 2012, arguing that the move would "substantially lessen” competition in the sale of Medicare Advantage plans to seniors [5] The Department’s concern was that eliminating competition removed the pressure to “maintain attractive benefits, low premiums and high-quality healthcare.”[6]

Aetna's proposed merger with Humana would dwarf the Humana-Arcadian deal. It would substantially decrease the level of competition in more than 1,000 local markets.[7] In some states, Aetna-Humana would utterly dominate the market. It’s been reported that the combined company would insure 88 percent of Kansans and 80 percent of West Virginians with Medicare Advantage plans.[8]

The impacts of the proposed health insurance deals aren’t likely to be that different from those in other excessively consolidated industries. For example, University of Pennsylvania Wharton School professor Robert Town warns that "[The insurance merger] reminds me of the airline sector."[9] After American Airlines merged with U.S. Airways, it tripled its first-quarter profitability.[10] Consumers weren’t so lucky, for them the deal resulted in worse customer service and higher fares for some flights.[11]

The Aetna-Humana deal will no doubt similarly improve insurers' bottom lines. But like the airlines, the benefits for providers and consumers are a lot less certain and the deal is much more likely to boost their costs and narrow their choices.

Competition in the insurance sector is essential to keep Medicare Advantage healthy and growing. The Department of Justice knows that and we should count on it to prevent this deal from derailing that “partnership” promise.

 

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[5] AHA PDF, letter to William Baer and Sylvia Burwell, page 7

[6] United States of America v. Humana Inc. and Arcadian Management Services Inc. Complaint, March 27, 2012.

[7] AHA PDF, letter to William Baer and Sylvia Burwell, page 1

Topic: Access and Coverage
Tags: acquisitions, consolidation, mergers, Coverage, antitrust

Melinda (Mindy) Reid Hatton is the General Counsel and Senior Vice President at the American Hospital Association.



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