Consumer Watchdog joined the nation’s leading consumer groups to submit a white paper to the Department of Justice today demonstrating why any potential remedies in the proposed Anthem-Cigna and Aetna-Humana mergers will not work to protect consumers from harm in a more concentrated health insurance market.
Consumer Watchdog called on the Department of Justice to reject the mergers last month after California Insurance Commissioner Dave Jones found they would lead to higher prices, reduced benefits and fewer choices for consumers in California and across the nation.
“Anthem and Aetna’s inability to show a penny of consumer savings, and their refusal to make significant commitments to not cancel plans or increase rates, should be enough to nix the mergers,” said Carmen Balber, executive director of Consumer Watchdog. “Today’s report confirms that consumers lose in every scenario if these mergers are approved. The U.S. Department of Justice should reject these multi-billion dollar deals that will pad health insurers profits at the expense of consumers’ health care.”
David Balto, author of the report, said, "It is vitally important that antitrust regulators understand that for health insurance mergers, remedies have generally failed to restore competition, and consumers have ended up paying the price."
Families USA, Consumers Union, Consumer Federation of America, Consumer Action, and U.S. PIRG also joined in sending the white paper analysis of past divestitures that failed to protect competition in the wake of mega-mergers to the Department of Justice.
The white paper finds:
- Retrospective analysis of past mergers shows that remedies often fail. A comprehensive survey of studies of merger remedies by Economics Professor John Kwoka found that mergers allowed to proceed with remedies resulted in average price increases of 7.68% in mergers where a divestiture remedy was used and 16.01% in mergers where a conduct remedy or other conditions were used.
- Remedies are generally only appropriate in mergers with significant efficiencies and benefits to consumers. In some cases, remedies may be appropriate if there is only some small segment of the merger that raises concern. In these instances, the problematic parts of the merger can be resolved through remedies while permitting a merger that is beneficial for both consumers and the merging companies. As we have documented in our testimony, and as affirmed by a recent letter by seven Senators and detailed reports by the California Insurance Commissioner, the merging insurers have not sufficiently demonstrated that consumers will benefit from these mergers.
- Antitrust enforcers have generally been tougher on mergers, and more skeptical of remedies, in recent cases. This increase in enforcement vigor is warranted in response to retrospective studies showing post-merger price increases. The proposed health insurance mergers do not present any better argument for consumer benefits than those found in the proposed Halliburton-Baker Hughes, Sysco-US Foods, or Staples-Office Depot mergers, in all of which remedies were rejected.
- Remedy attempts in the health insurance industry have largely failed. Remedies were attempted in the 1999 Aetna-Prudential and 2008 United-Sierra mergers, and prices still increased by 7% and 13.7% respectively. The biggest failure was the 2012 Humana-Arcadian merger, where one of the three acquiring companies exited the market, another company partially exited the market, and premiums increased by 44%.
- The divestitures necessary to resolve competitive concerns are unprecedented in size and scope. Piecemeal divestitures will not fully restore competition and fulfill the law’s obligation that “restoring competition requires replacing the competitive intensity lost as a result of the merger rather than focusing narrowly on returning to premerger [concentration] levels.” For both transactions divestitures will be required in hundreds of counties throughout the U.S., involving hundreds of thousands, if not millions, of enrollees. There are also very few counties with established companies ready to service acquired enrollees on day one. In the Humana-Arcadian merger, which involved a modest divestiture of 12,700 subscribers in 51 markets, two of the three acquiring companies failed to compete effectively, and completely or partially exited the market.
- The costs of the divestitures in disrupted service, higher premiums, uncertainty, and inferior service will be borne by consumers. Especially for the Aetna-Humana merger, the most vulnerable consumers – elderly and disabled Medicare beneficiaries – will suffer the greatest harm.
