California Lawmakers Consider Giving Regulators More Grounds To Reject Health Insurance Mergers

A stop sign stands in front of Aetna Inc. headquarters in Hartford, Conn. The merger of Aetna and Humana was approved by the Department of Managed Health Care in June 2016, but a federal judge recently blocked the $37 billion deal. (Michael Nagle/Bloomberg via Getty Images)

State lawmakers are considering a proposal to give regulators broader flexibility when determining whether insurance company mergers would be good for consumers.

The proposal, approved in the California Assembly Health Committee earlier this week, would require the state’s Department of Managed Health Care (DMHC) to evaluate if a health insurance merger would disrupt market competition, and if it would benefit consumers in terms of costs and quality. The agency regulates the vast majority of California’s health insurance market.

California’s DMHC can now decide whether to approve or reject health plan mergers based on a narrower set of criteria, including whether the merged company would be financially viable and pay out claims, and whether provider networks would be endangered.

While the agency has jurisdiction over which health plans do business in the state, it cannot on its own block a national insurance merger. But its decisions can influence the U.S. Department of Justice as companies try to win antitrust approval from the federal agency.

Under the new proposal, the DMHC would be required to consider, for instance, if a merger would create fewer insurance options in a region or if consumers’ premiums would rise.

“We want the DMHC … to have the ability to protect consumers and reject mergers if they are bad,” said Tam Ma, legal and policy director of the consumer group Health Access, which supports the measure. “Health plans and insurers should not be able to get bigger unless they actually get better.”

The proposal comes after a series of health plan mergers were approved by the Department of Managed Health Care over the past few years.

The merger of Aetna and Humana was approved by the Department of Managed Health Care in June 2016, but a federal judge recently blocked the $37 billion deal, saying it would reduce competition in the individual and Medicare markets.

Consumers Union supports the bill, arguing that Californians would benefit from clearer regulatory guidelines about proposed health insurance “megamergers.”

“While our regulators did do the best they could do under their current authority, we believe AB 595 would actually take them one step further,” said Dena Mendelsohn, staff attorney with Consumers Union.

A 2015 Commonwealth Fund study found that health insurance mergers led to higher premiums, and it was hard to determine whether mergers improved the quality of services provided by health plans.

The insurance industry opposes the measure, saying California regulators already dictate terms of health insurance consolidations.

The bill’s “vague and broad” standards would discourage new investments in health care, according to the California Association of Health Plans (CAHP).

“Even a relatively basic consolidation or transfer of assets within the same corporate family could trigger prior-approval and hold back innovative investments,” said Nick Louizos, the association’s vice president of legislative affairs.

Republican Assemblyman James Gallagher (R-Yuba City) voted for the bill. He represents a rural district in Northern California, where only two insurance carriers dominate the market in the state’s Obamacare exchange, Covered California.

Gallagher said consolidation could lead to “no competition” in the health insurance marketplace.

“I do want to see maybe some more oversight of those mergers, especially in those cases where the competition is not so robust,” Gallagher said.

The measure also would require a public hearing before any mergers are approved. Consumer advocates say those hearings have occurred at their request but aren’t now mandated by law.

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