- - Monday, September 7, 2015

The health insurance industry is undergoing breathtaking consolidation.

Industry giant Anthem recently struck a $54 billion deal to buy rival Cigna. If approved, the merger would create the largest insurance company in the United States, serving more than 53 million Americans. The deal comes after Aetna announced it would buy Humana for $37 billion.

These transactions should alarm Americans. Insurance mega-mergers limit competition, increase premiums and lower the quality of coverage for consumers. What’s more, allowing fewer carriers to dominate the market could open the door to a single-payer system — a government takeover that would be disastrous for patient care.

The U.S. Department of Justice and the Federal Trade Commission should block these mergers to protect consumers.

Some industry watchers believe that mega-insurers would have more bargaining power with medical providers — and could thus lower the costs of care. But to think patients would actually benefit from that bargaining power is naive.



With their increased market share, mega-insurers will extract savings from providers. But they’ll do so by lowering the quality of coverage. Insurers will narrow their physician and hospital networks and bargain to get rock-bottom prices from providers. That could split patients from family doctors and community clinics. For enrollees in rural areas, narrower networks could mean longer drives to larger hospitals for care. And lower payments to providers could compromise the quality of care that enrollees receive.

Customers win when there’s competition. As businesses compete, firms face pressure to lower prices and offer more and better-quality services to gain customers.

Conversely, when market players get so big that the barriers to entry for potential competitors are insurmountable, the firms left standing have the power to demand higher prices from consumers while skimping on quality.

That’s exactly what will happen in the health insurance industry if regulators allow insurance companies to consolidate further — and only a handful of competitors remain. Indeed, if the Anthem-Cigna and Aetna-Humana deals gain approval, just three national health insurance companies will remain: Anthem, Aetna and UnitedHealth.

In some regions, competition between insurers could effectively disappear. An Aetna-Humana merger, for example, would cover two-thirds of individual insurance enrollees in Georgia.

With fewer competitors and no obligation to pass savings to consumers, mega-insurers will be able to charge patients even more for coverage. A recent Northwestern University study found that the 1999 merger between Aetna and Prudential Healthcare caused premiums to increase above pre-merger prices by 7 percent. Another study revealed that when UnitedHealth Group took over Sierra Health Services in 2008, premiums in Nevada surged 14 percent.

Perhaps the worst consequence of consolidation is that it opens the door to a single-payer system. When Obamacare was being negotiated, lawmakers rejected single-payer. They expected competition in the insurance market to keep the cost of coverage down. If these mega-mergers go through and consumers no longer enjoy the quality and quantity of plans that result from competition, advocates of a public insurance option will re-emerge.

Nothing would be more catastrophic for Americans’ health than letting bureaucrats manage the nation’s entire health care system.

Consider Canada’s government-run health program. To contain costs, Canada’s single-payer system must ration care.

Wait times are horrendous. For one-third of Canadian patients, it takes six days or more to see a doctor. Some Canadians have reported waiting in the emergency room for more than four hours before being seen.

According to the Fraser Institute, one in 36 Canadians is waiting to get a primary care doctor. That’s just half the battle; it takes 18.3 weeks, on average, to receive treatment from a specialist after seeing a primary care doctor. It’s no wonder that 52,000 Canadians travel to the United States each year because of long wait times; they use the U.S. health care system as an escape valve.

Canada’s system is also plagued by a lack of innovation. Since bureaucrats control which treatments and procedures to fund, few incentives exist to develop advanced technologies and therapies. That’s significantly hampered medical innovation north of the border. Pharmaceutical research and development spending by Canadian companies fell 29 percent between 2001 and 2013.

Bigger might be better for insurance companies’ bottom lines. But mega-mergers don’t benefit consumers and patients. Regulators must maintain competition in the insurance market and stop these mergers from edging the country toward a single-payer system and substandard care.

Sally C. Pipes is president, CEO and Thomas W. Smith Fellow in health care policy at the Pacific Research Institute. Her most recent book is “The Cure for Obamacare” (Encounter, 2013).

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