Regulators Must Work Together to Scrutinize Health Insurance Mergers

In July 2015, two mega multi-billion dollar health insurance mergers were announced as Aetna proposed to acquire Humana and Anthem proposed to acquire Cigna, which if approved, would cut the number of major national health insurers from five to three.

Both deals have received Second Requests for information from the Department of Justice’s Antitrust Division (“DOJ”) and each face a high hurdle to win approval from a DOJ that has recently challenged mergers in industries with few competitors and that is skeptical of such mega mergers.

To be sure, the surge of health insurer deals will not viewed with a blind eye rather the DOJ, state AGs, and state health insurance commissioners are expected to take a critical look at the trend of health insurance consolidation and the specific antitrust concerns related to each deal to make sure competition is preserved and the mergers do not lead to higher costs for consumers.

The Affordable Care Act (“ACA”) is premised on the idea that consumers benefit from competition in both provider and insurer markets so maintaining competition is very important.  Therefore, merger enforcement by the FTC and DOJ should continue to be a priority.  The FTC has done its part as it has recently challenged a number of mergers between hospitals and physician groups and continues to investigate other combinations.  The DOJ has also done its part.  Indeed, in the past sixteen years, the DOJ has either blocked outright or required divestitures in seven health insurance mergers.  The DOJ has protected individuals, employers buying small and large group insurance, Medicaid managed-care enrollees, and Medicare Advantage customers as well as health care providers.  Each of the enforcement actions by the FTC and DOJ have focused on local competition concerns, now the DOJ has two major health insurer deals with both national and local implications to review.  The regulators will have to determine whether the transactions should be allowed and if so, what types of remedies will be necessary to restore any lost competition from the mergers.

The ACA’s exchanges depend on insurers competing based on the strength of their networks and the prices they offer.  The emergence of the healthcare exchanges has already effected competition.  The healthcare exchanges were designed to influence competition by giving consumers better access and visibility into health insurance plans.  While there has been some new competition in local markets, nothing has changed in other markets.  Indeed, examining how the exchanges operate in local markets is important to understanding competition.  One of the goals of the exchanges was to encourage new health insurance plans to enter.  Indeed, twenty-three cooperatives entered, however, approximately half have already failed.  Thus, the success or failure of cooperatives is an important factor for assessing current and future competition.

Merger analysis is flexible enough to allow the regulators to not simply examine the markets as the currently look but to predict what they may look like in the future.  The regulators must consider whether a merger among insurers creates greater bargaining leverage over hospitals that would lead to less quality of care and whether these mergers have the potential to reduce entry, expansion, innovation or competition in any relevant market(s).  At the same time, the regulators must consider legitimate cost savings that may benefit customers.

If the regulators ultimately conclude that the transactions result in a number of competitive concerns in local markets throughout the United States, the regulators will need to work together to determine whether a sufficient remedy exists that fully restores any lost competition.  Typically, merging companies work with the antitrust enforcement agencies to identify areas of concern and agree to appropriate remedies to ensure that the merger can proceed without harming consumers.  History has shown, however, that with respect to health insurer mergers, state insurance commissioners can obtain broader concessions than the DOJ.

The competitive analysis of these mergers is not simple, but one thing is clear, the DOJ will need to cooperate with numerous state AGs and health insurance commissioners to determine the best course of action.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com