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Why the Justice Dept may block health insurer mergers

Anthem is one of the major insurance providers in attempting a merger.  Aaron P. Bernstein/Getty Images

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 It may be the worst kept secret in Washington at this point, but all signs point to the U.S. Department of Justice blocking two huge proposed health insurance mergers.

When it comes to anti-trust issues, the U.S. Justice Department’s mission is pretty straight forward.

Lawyers and economists there are basically deal referees.

“Consumers have essentially an economic right to a competitive market,” St. Louis University School of Law Professor Tim Greaney said.

“Things that distort that, whether it be anti-competitive mergers or price-fixing in a smoke-filled room, are illegal”.

Now, we don’t know for sure what DOJ will do, but it sounds like after kicking the tires, these ‘referees’ have decided consumers will end up paying a premium on their premiums.

An influential study shows past insurance consolidation led to average hikes of 7 percent. 

Economist Ted Frech at UC Santa Barbara says another thing to consider is that insurance giants like Anthem and Aetna are dominating the game.

“A lot of insurance markets are already pretty concentrated and that’s been increasing over time, and this would make it worse in a lot of markets,” he said.

A Marketplace analysis of American Medical Association data found the top two insurers control 65 percent of the market or more in 27 states.

Insurers have defended these deals, with Aetna vowing to fight this out in court if it has to.

Aetna spokesperson Kristine Grow said a bigger footprint will help the company marshal resources and bring innovation like more customized plans.

“Today’s Medicare market especially is calling for more customized solutions that speak to a better experience for the individual. Together we would have the team, the talent and the technology to develop those solutions for consumers,” she said.

Harvard Business School economist Leemore Dafny has her doubts.

“Consolidation in this sector is likely to lead to stagnation, not innovation,” she said.

Dafny said competition will drive the innovation that is needed now that health insurance has become a mandated product with limited choices.

For example, “try to design plans that are appealing to the tech-savvy crowd, plans that are appealing to young families, plans that meet the needs of empty-nesters,” she said.

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