The rise of proposed mergers in the health insurance industry in 2015 has stoked the usual antitrust concerns that arise over consolidation in an oligopolistic market such as recently witnessed in telecommunications with the unconsummated marriage of Comcast and Time Warner Cable.
However, the executive director of California’s health benefit exchange and a health economist write in The Wall Street Journal that consolidation in the health insurance market helps offset consolidation that’s also taking place among health care providers. A balance of market power between payers and providers will benefit buyers of health insurance, explain Peter V. Lee, executive director of Covered California and Victor R. Fuchs, emeritus professor of health economics at Stanford University. (Disclosure: I served on the policy staff of Covered California in its startup phase). That’s because the payers write the checks to providers and can use their leverage to demand better value for their dollars through value-based reimbursement schemes like accountable care organizations, according to Lee and Fuchs:
Anthem’s proposed merger with Cigna following Aetna ’s acquisition of Humana has set off alarms about lack of competition in the health-insurance industry. But policy makers should consider the potential benefits of industry consolidation. The greater efficiency and market power of larger insurance plans could lower prices for consumers by offsetting the bargaining power of health-care providers.
Lee and Fuchs argue that the economic benefit of higher value care will be passed through to health insurance buyers because the Patient Protection and Affordable Care Act by statutorily defining minimum loss ratios (80 percent individual and small group segments, 85 percent for large group coverage) acts to limit the amount of any savings generated for boosting administrative overhead and profits. They note the average annual profit margin for health plans offered by Covered California is currently a skinny 1.1 percent.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email