Any health insurance company that seeks to buy another insurer will have some tough questions to answer. So, after Aetna made a formal offer to buy Humana on Thursday and Centene offered to buy Health Net on Wednesday, one of those questions has to be: Will consumers benefit?
“The combined entity will help drive better value and higher-quality health care by reducing administrative costs, leveraging best-in-breed practices from the two companies – including Humana’s chronic-care capabilities that measurably improve health outcomes for larger populations – and enabling the company to better compete with more cost effective products.”
Statements like these will form the basis of the companies’ arguments before the federal Department of Justice, which has already said it will scrutinize any mergers or acquisitions involving health insurers.
But consumers are not likely to be the winners when insurers consolidate. Writing in The Hartford Courant, Dan Haar noted that premiums are likely to rise. He quoted Leemore Dafny, a professor at the Kellogg School of Management at Northwestern University, “If past is prologue and if you look at the averages, premiums go up.” Dafny has studied the effects of mergers in health care.
Also in Forbes, Dan Diamond quoted Martin Gaynor, a professor at Carnegie Mellon University who recently worked at the FTC. Questioning the value that accrues when one large insurer acquires another, Gaynor told Diamond, “It’s not clear to me, do they get any more scale economies from getting bigger?”
Last month, Bob Herman explained in Modern Healthcare that any consolidation among health insurers is likely to cause hospitals and physicians to form larger entities. “Insurance consolidation could spur more consolidation among providers to counter the greater bargaining power of a smaller number of big insurers,” he wrote. The Economist covered this angle as well.
Note that the two insurance deals this week could be part of a trend, as Chad Terhune reported in the Los Angeles Times.
When hospitals and physicians form larger entities, consumers are likely to pay more, as we reported in this blog post in March, “Study: Little evidence that integrating hospital, physician care improves quality or reduces costs.”