Anyone making a major purchase wants to maximize value by exploring their options. Shopping for the best of multiple options drives market competition and promotes innovation and efficiency. The benefits of purchaser choice in a competitive market are just as important to patients in the health insurance market.
Competition among health insurers can lower premiums, enhance customer service, and spur innovative ways to improve quality while lowering costs. Patients benefit when they can choose from an array of insurers that compete for their business by offering desirable coverage at affordable prices.
However, shopping for competitive health insurance options can be difficult when a market is controlled by one or two large commercial insurers. The lack of a competitive commercial health insurance market is a problem in 70% of metropolitan statistical areas, according to a new study by the American Medical Association.
The areas highlighted by the AMA study are vulnerable to a marketplace imbalance that favors powerful health insurers. In practice, a dominant health insurer can flex market power muscle to increase premiums, water down benefits and grow corporate profitability at the expense of high-quality care — all without fear of losing business to a competitor.
The trend toward market dominance in a heavily consolidated health insurance industry will continue if the nation’s five largest health insurance carriers are reduced to just three. According to analyses issued by the AMA, the combined impact of the Anthem-Cigna and Aetna-Humana mergers would exceed federal antitrust guidelines designed to preserve competition in as many as 97 metropolitan areas within 17 states, including California.
The AMA analyses found that the Anthem-Cigna merger would have a significant impact on California’s commercial health insurance markets. The mega-merger’s impact would exceed federal antitrust guidelines and be presumed to enhance market power in nine California metro areas (Santa Cruz-Watsonville, Santa Ana-Anaheim-Irvine, Santa Barbara-Santa Maria, Salinas, Oxnard-Thousand Oaks-Ventura, Los Angeles-Long Beach-Glendale, Bakersfield, El Centro and Modesto), while raising significant competitive concerns in an additional six California metro areas (San Jose-Sunnyvale-Santa Clara, San Diego-Carlsbad-San Marcos, San Francisco-San Mateo-Redwood City, Riverside-San Bernardino-Ontario, Oakland-Fremont-Hayward, and Sacramento-Arden-Arcade-Roseville).
As I noted in my testimony to congressional leaders at a recent investigative hearing, we are at a critical decision point on health insurance mergers, because once consummated, there is simply no going back. Post-merger remedies are likely to be both ineffective and highly disruptive. You can’t unscramble an egg.
Thus, the AMA strongly believes that the time for heightened scrutiny and careful consideration is now, before proposed mergers take effect and patients are irreparably harmed. The solution lies in more, not less, competition.
The good news is there are steps that state and federal regulators can take right now to carefully review the proposed mergers and use enforcement tools to preserve competition.