Center for American Progress

RELEASE: CAP Analysis Finds that Health Insurance Mergers Will Raise Premiums, Harm Medicare Beneficiaries
Press Release

RELEASE: CAP Analysis Finds that Health Insurance Mergers Will Raise Premiums, Harm Medicare Beneficiaries

Washington, D.C. — A new analysis conducted by the Center for American Progress finds that the proposed merger between the health insurance companies Aetna Inc. and Humana Inc. would greatly reduce market competition for Medicare Advantage beneficiaries in the markets they serve. This reduction in competition likely would result in increased premiums for seniors and raise overall costs for Medicare that would then be passed on to taxpayers. As federal and state regulators review this and other proposed insurance mergers in the coming months, CAP’s findings are a reminder to set a high bar in considering these mergers and to be mindful of other avenues to constrain health care costs and improve quality in the industry.

CAP conducted a regression analysis to measure the effect of competition between Aetna and Humana on premiums and found large and highly statistically significant effects. In markets where Medicare Advantage beneficiaries currently have a choice between the insurers, CAP found that competition lowers Aetna’s average annual premiums by up to $302 and Humana’s annual premiums by $43. Under the merger, premiums could actually increase beyond these amounts because of the greater market power of the combined company.

“Insurers commonly argue that mergers are necessary to counter the increasing consolidation among health care providers. However, the health care system cannot engage in such an arms race,” said Topher Spiro, Vice President for Health Policy at CAP. “When there are fewer insurers and fewer providers, there is less of an incentive to negotiate lower costs, leaving beneficiaries, taxpayers, and Medicare to pay the excess.”

In 2015, Aetna and Humana both offered Medicare Advantage plans in 562 counties in 28 states, according to data that CAP collected from the Centers for Medicare & Medicaid Services. This is almost 20 percent of all the counties and county equivalents in the United States and up from just 82 counties in 2012. The range of the number of counties with both issuers varies significantly by state—from just 1 county in Arizona and Nevada to 59 in Pennsylvania and 67 in Missouri. The merger also could foreclose potential future competition in the overlapping markets if other insurers are dissuaded from entering because of the advantages of the combined company, as well as potential future competition between the two insurers in markets where they do not currently overlap.

Taxpayers would feel the effect of such a merger through higher federal spending for the Medicare program. For example, if the bid for the costs needed to cover each beneficiary were higher under the merged company than when they were competitors, then the government would end up spending more money per beneficiary. An Aetna-Humana merger would also have a significant effect on the individual health insurance market, especially in the eight states where they both operate. Research indicates that marketplace costs are 3.5 percent lower for every additional insurer participating in a rating area. If this merger occurred in 2015, a family of four living in one of the eight states would pay an average of $328 more in premiums for the second-lowest-cost silver plan.

For seniors who may face higher costs under the merger, CAP’s analysis notes that just switching to traditional Medicare should not be an assumed safety valve. CAP recommends that traditional Medicare follow through on payment reforms already in the works and for all Medicare Advantage insurers to follow its lead. This would result in far greater incentives for providers than if a single large insurer, such as that of an Aetna-Humana merger, adopts payment reforms and other cost-saving strategies. The evidence of CAP’s analysis demonstrates that the bar should be very high for approving these mergers and that they should be stopped absent clear and compelling evidence that they will benefit consumers.

Read the full issue brief, “Bigger Is Not Better: Proposed Insurer Mergers Are Likely to Harm Consumers and Taxpayers” by Topher Spiro, Maura Calsyn, and Meghan O’Toole — online here.

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For more information on this topic or to speak with an expert, contact Liz Bartolomeo at [email protected] or 202.481.8151.

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