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Will health insurance mergers help or hurt consumers?

Dan Gorenstein Jul 23, 2015
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Health insurer Anthem appears ready to throw down nearly $50 billion to purchase rival Cigna. This would be the second proposed mega-merger in the industry in less than a month.

Welcome to healthcare’s version of an arms race, where hospitals and insurers vie for supremacy. As these titans battle it out, the threat is that consumers end up losing no matter who winds up on top.

Carnegie Mellon economist Martin Gaynor says there’s a simple question we shouldn’t lose sight of in this new wave of potential deals.

“Are these mergers going to make us better off?” he asks.

Will a merged Humana and Aetna be able to do things more cheaply? Will a merged Anthem and Cigna be able to do something new?

University of Minnesota economist Steve Parente says the answer is probably yes. If these deals go through, companies will expand their business into different types of insurance, giving them better intelligence about what hospitals are willing to take.

“You now get to see in a sense exactly what providers are willing to take for a Medicaid patient that’s low income, and a commercial insurance patient that is basically the best reimbursement you are going to see,” he says.

That leverage may be why Anthem’s CEO Joe Swedish says this deal would bring in $2 billion in “annual synergies,” business speak for cost savings. Companies say that could get passed on to consumers.

But professor Leemore Dafny with Northwestern’s Kellogg School of Management says if past is prologue, when insurers merge, premiums go up.

“This is a highly consolidated industry that has not delivered a lot of innovation historically,” she says. “And to believe that more consolidation is going to serve us is to put a lot of faith that increased scale will bring us improvements.”

What really troubles Dafny is that it’s hard to enter the insurance business. So if insurers fail to deliver on these merger promises, it’s not clear if anyone can step up and provide consumers with another choice.  

For background on the proposed merger, check out Mitchell Hartman’s story here.

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