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Consumers Suffer as Health Insurers Consolidate

SOURCE: AP/Matt Rourke

Blue Cross' headquarters in Philadelphia, PA, photographed last year when the boards of Independence Blue Cross and Highmark, Inc, Pennsylvania's two health insurers, were meeting to decide whether or not to merge.

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CAPAF’s David Balto testifies before the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights. Read the full testimony.

Skyrocketing premiums have put insurance out of reach for millions of consumers and thousands of small businesses and the number of uninsured Americans has increased to critical levels: over 47 million, or one out of seven Americans under age 65. As consumers have suffered from egregious deceptive and anticompetitive conduct by insurance companies, those companies have recorded record profits. The problems presented could not be starker or have a more severe impact on consumers.

In the past decade there have been over 400 health insurer mergers and in only two cases has the Department of Justice brought any enforcement action. Besides mergers, the Justice Department has not brought any cases challenging anticompetitive or exclusionary conduct by health insurers, even though numerous private plaintiffs and state attorneys general have challenged this type of conduct. In effect, the insurance companies have gained a newly found “antitrust immunity.”

The consequences of lax antitrust health insurance enforcement for consumers are clear. The American Medical Association reports that 95 percent of insurance markets in the United States are now highly concentrated and the number of insurers has fallen by just under 20 percent since 2000. These mergers have not led to benefits for consumers: instead premiums have skyrocketed, increasing over 87 percent over the past six years. Small employers have been particularly harmed by skyrocketing premiums and they increasingly find it difficult to offer health insurance coverage. Patient care has been compromised by the over-aggressive efforts of managed care, and the number of uninsured Americans has reached record levels.

A vital component to assuring the competitive marketplace is protecting the ability of consumers to choose between alternatives. Antitrust enforcement against anticompetitive mergers and exclusionary conduct is essential to a competitive marketplace. This unprecedented level of concentration and the lack of antitrust enforcement pose serious policy and health care concerns.

Competition matters: A recent study noted that insurance premiums are 12 percent lower in those markets in which there is comparatively a lower level of concentration than in more concentrated markets.

Congress is currently grappling with the severe problems of the uninsured. The number of uninsured has increased by over 17 million since 2001 and now amounts to over 47 million Americans.

There is a direct relationship between the insurance consolidation and the anticompetitive conduct engaged in by health insurers, and the increasing problem of the uninsured in the United States. Increased concentration and a lack of enforcement have led to skyrocketing premiums, higher deductibles, and higher co-pays. The most severe problems occur simply when employers or employees can no longer afford insurance. Increasingly employers have been forced to scale down insurance or drop insurance altogether. Thus, the number of uninsured individuals has hit a record level. The lack of enforcement has created an environment where the insurance companies act as if they are immune from antitrust scrutiny. This must be reversed.

Perhaps the most striking example is the DOJ’s modest enforcement action that permitted the nation’s largest insurer United Healthcare Group to acquire Sierra Health Services, the dominant insurance company in Las Vegas. The merger increased United’s market share from 14 percent to 56 percent in Las Vegas. After an 11-month investigation of a merger posing an unprecedented level of concentration in perhaps the most vulnerable health care market in the United States, the DOJ chose a modest remedy on a single line of business. Even though the DOJ reviewed millions of pages of documents and conducted over 100 interviews, it failed to address the significant loss of competition in both the sale of commercial insurance and purchase of physician services markets. Ultimately, the Nevada attorney general had to step in and file a separate case in federal court with a 61-page consent order to address some, but not all, of the concerns ignored by the DOJ. However both actions permit United to secure over a 56 percent market share in the Las Vegas commercial health insurance market, positioning it as a firm that can increase premiums, reduce service, and reduce reimbursement to hospitals and physicians leading to a lower level of health care in the fragile Las Vegas health care market.

The proposed merger faced almost unprecedented opposition from government entities, community groups, public interest groups, healthcare alliances, physicians, nurses, employers, and state legislators. After the proposed consent decree was filed by the DOJ, numerous groups including the American Medical Association and other physician groups, the Service Employees International Union, the Honorable Nydia M. Velazquez, Chairwoman, United States House of Representatives Committee on Small Business, and the Honorable Chris Giunchigliani, Commissioner, Board of Commissioners of Clark County, Nevada filed comments under the Tunney Act objecting that the DOJ action was inadequate because:

  • It failed to secure relief in the commercial insurance market
  • It failed to secure relief in the market for the purchase of physician services
  • The action was inconsistent with past DOJ policy
  • The merger will lead to lower quality of health care by reducing reimbursement to physicians and hospitals

One of the critical issues raised in the comments was the potential for United to exercise monopsony power, depressing the level of reimbursement for hospitals and physicians. The DOJ’s failure to bring an enforcement action based on provider issues seemed inconsistent with past precedent. As representatives of consumers, we recognize the important need to manage health care costs. However, giving insurers greater buying power is not necessarily beneficial for consumers. Health insurers with monopsony power may profit from pushing provider prices “too low” so that consumers do not receive an adequate level of service and quality.

These Tunney Act filings were voluminous and the commentators’ arguments were supported with a broad range of evidence that included surveys and expert testimony. Unfortunately, the DOJ refused to respond to the concerns about commercial insurance or provider issues raised by the commentators suggesting that “[b]ecause the United States did not allege that the United’s acquisition of Sierra would cause harm in additional markets, it is not appropriate for the Court to seek to determine whether the acquisition will cause anticompetitive harm in such markets.” As described in the AMA comment that argument was inconsistent with Congress’ intent in amending the Tunney Act. Moreover, the DOJ’s silence is simply inconsistent with its policy of articulating reasons for not bringing enforcement actions. Simply, all consumers, nurses, doctors, and health care providers deserve to have their questions answered by the chief antitrust enforcement official about why this merger did not pose substantial competitive concerns.

Read David Balto’s full testimony to the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights (CAPAF)

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