Are Healthcare Mergers Good or Bad? It’s Complicated

healthcare-mergers

This summer, healthcare mergers are in the air. As the big five work toward becoming an even bigger three (Anthem is poised to take over its rival Cigna, and Aetna is about to buy Humana), the U.S. Justice Department is preparing to block the mergers with lawsuits.

Who to root for? Are mergers like these positive or negative? Those are sticky questions to answer – and no one said that would be easy, either.

Consumers raise an outcry

Consumers, for their part, are pushing back. When Congress held hearings on the proposed mergers, it saw definite opposition from “consumer advocates and others,” the NY Times said. It’s their interest that the Justice Department is trying to protect. Its officials, “who are responsible for protecting competition, are concerned that the deals … would harm customers,” said Bloomberg.

How? For one thing, there’s a risk in letting already-powerful companies accumulate yet more power. Attorney General Loretta Lynch said that these mergers “would leave much of the multitrillion-dollar health insurance industry in the hands of three mammoth insurance companies,” according to the NY Times.

Then there’s competition. Lynch said the mergers would reduce competition among insurers, lifting the pressure to provide lower premiums, higher-quality care and better benefits. This runs directly against the grain of the ACA, which deliberately aimed to fan the flames of competition, not put them out.

But it may not be that simple

It’s easy to say, “When companies merge, prices go up,” and call it a day. But as with all things healthcare, the reality is more complicated. Mergers can bring positive results; there are pros as well as cons. For example, a merger can enhance an organization’s bargaining power in provider contracting, lowering the cost of medical services. Because medical costs drive healthcare coverage costs, this can lower insurance premiums in turn.

Of course, in a consolidated market there’s no guarantee that these savings would be passed through to consumers. But with mandatory medical loss ratios governing how health insurance premiums are structured (including limits on administrative costs), not passing savings on is less of a risk.

See one merger, you haven’t seen them all

It’s worth mentioning that every merger has its own set of real and potential pros and cons. Each must be considered on its own merits. The complicated circumstances surrounding mergers are why we have designated government agencies to conduct detailed investigations before a merger can be approved.

By challenging both deals at once, the Justice Department makes a unique treatment of each merger less likely. “There is a tactical advantage to having both cases go on at the same time,” said Thomas Greaney, co-director of the Center of Health Law Studies at Saint Louis University, because the case against one merger “poisons the other.” By blurring the details that make each case unique, simultaneous suits lower the likelihood that either merger will go through.

Are mergers good or bad?

Once again, it depends. Sometimes mergers are good news: For example, it may allow two carriers to benefit from each other’s strengths and fill in one another’s weak areas, not only elevating their position in the market, but adding value to those they serve as well through additional product lines, market segments, or geographic coverage areas.

In this case? That will have to be settled in court, assuming the organizations choose to fight the lawsuit. According to Bloomberg, Aetna and Humana probably will; Anthem and Cigna probably won’t.

Either way, you can be sure to stay on top of the issue at Beacon Path. If you haven’t already done so, subscribe to our blog.

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