The Department of Justice argued that a merger of Anthem and Cigna would allow them to monopolize the market, but the agency's concerns didn't end there.
A federal judge's halt to the proposed $48 billion deal to merge insurance giants Anthem and Cigna was about more than simply the size of the company that would have resulted, one analyst says.
It also was about how the big health plans have influence on so much more than just the premiums their customers pay and the benefits they get.
Judge Amy Berman Jackson of the D.C. District Court sided with antitrust regulators Feb. 1 and determined that the proposed merger would violate antitrust laws by monopolizing too much of the healthcare insurance market. Anthem quickly announced that it will appeal the decision.
The judge's decision was not surprising considering the criticism and questioning that emerged as soon as the insurers announced their plan, says Randal Schultz, a partner at the law firm of Lathrop & Gage and chair of the firm's Healthcare Strategic Business Planning Practice group.
The Department of Justice has not yet released the judge's decision, but Schultz says she must have considered how the reach of big health plans extends into nearly every part of the healthcare industry.
"This issue was about more than just the merger," he says. "The two prime elements of healthcare are how you finance it and how you deliver it, and in this case, the big insurance companies have their fingers in both pies."
Beyond Premiums and Benefits
In addition to how insurers control premiums and benefits, even self-insured employers often rely on big insurers for administrative-services-only (ASO) contracts to coordinate and adjudicate claims, Schultz notes.
"Not only can they set the price they charge to employers for insurance coverage, but if they get the ASO contract, then they can control costs associated with adjudicating claims, they can determine utilization, and of course, they provide the network of providers that the employers use whether they're self-insured or not," he says.
"A lot of providers can't survive without a managed care contract, and if you only have two payers in a community and they just happen to have similar price structures, there's no negotiating."
In theory, the biggest insurers could help control the cost of healthcare because they are so influential, and a merger would give the resulting company even more ability to do so, Shultz notes. But that depends on the health plans sacrificing their own interests for the good of consumers and society, he says, and that's not a horse to bet on.
"If I'm an insurer and I'm the only game in town, what incentive do I have for making it less expensive?" he says.
"It's easier to say your industry should work toward that goal when you have a lot of competition and can spread the responsibility. But when you have so much of the market, and all of the market in some areas, you're not likely to sacrifice profits by lowering the cost of what you sell and what you control."
A Call for Transparency
In the unlikely event that the appeal is successful and the merger goes through, Schultz says the federal government should demand that the merged company release to the marketplace the actual cost of care for the population they insure. That would help mitigate the effect of one company controlling so much of the marketplace, he says.
"If smaller employers have a more accurate picture of the actual cost of care, they can make better decisions about deductibles and self-insurance, which itself would create more competition in the marketplace," Schultz says.
"At this point, blocking the merger and letting companies figure out another way to improve their economies of scale is probably the right thing to do."
Gregory A. Freeman is a contributing writer for HealthLeaders.