By Jad Chamseddine, CQ Roll Call
January 28, 2016 -- Aetna Inc.’s proposed acquisition of Humana Inc. would reduce competition so much among Medicare Advantage providers that divestitures might not remedy increased premiums, according to a recent Center for American Progress study.
The report focuses on Aetna and Humana because of their dominance within Medicare Advantage, a part of the government-run health insurance program for the elderly and disabled that involves private insurers. The progressive think tank found that the Medicare Advantage market is already highly concentrated and the combined company would serve as much as 25 percent of all Medicare Advantage consumers.
The study argues that the Justice Department, in its analysis of the merger, should consider Medicare Advantage separately from the traditional Medicare market because of senior citizens’ inability to easily switch between the two.
"Medicare Advantage is an attractive insurance market for insurers because of the country’s aging population and increasing percentage of seniors choosing these plans," the study said, pointing to statistics that show a 7 percent increase in Medicare Advantage enrollees in the past five years. There are currently 16.8 million Americans enrolled in a Medicare Advantage Plan, which is about 31 percent of all Medicare-eligible citizens.
The paper states that Aetna and Humana compete vigorously with each other in markets where they overlap, leading to a decrease in premiums. "Specifically, in counties where Humana offers a plan to compete with Aetna, Aetna’s average annual premiums are $302 lower than in counties where Humana does not offer a plan," according to the report.
Instead of Aetna entering markets were Humana is already established and driving the price down, acquiring Humana would instead maintain the status quo and keep prices high, the study said.
But Aetna CEO Mark T. Bertolini told lawmakers in hearings held in September that the merger would help the combined company create synergies and cut costs, which could flow to consumers. But Bertolini, after being pressed during a Senate Judiciary hearing, could not guarantee that consumers would experience those savings.
He also rejected the notion that the health insurance market should be scrutinized on a national level, saying "all health care is local, just like politics" after lawmakers and merger critics said Aetna’s acquisition of Humana would reduce the number of health insurers nationally.
Bertolini reluctantly agreed during a hearing held by the House Judiciary committee that the acquisition of Humana could lead to excessive concentration in a couple of markets, but assured lawmakers that these assets would be divested if the Justice Department deems it necessary.
"Concentration is one measure of whether or not there is a problem from a competitive standpoint," Bertolini said. "We will cooperate with the Department of Justice in reviewing that opportunity and those issues."
The Center for American Progress does not want the Justice Department to accept divestitures as a form of remedy. The organization argues that an already high concentration in the Medicare Advantage market and high barriers to entry mean that "the competitors to which Aetna and Humana could divest may not exist."
It added that "these barriers include building provider networks, negotiating competitive rates with providers, establishing a reputation with customers in the local market, and creating economies of scale in areas such as information technology," making it almost impossible for a start-up to compete with an already established multi-billion dollar company.
The Justice Department is reviewing Aetna’s proposed acquisition of Humana along with a larger proposed merger between Anthem Inc. and Cigna Corp. The government agency has not given any insight when it will give its verdict regarding either deal, but late last year Bill Baer, the head of the Justice Department's antitrust section, indicated in a speech at Yale Law School that the agency will work hard to keep the health care industry competitive.