AMA Opposes Health Insurer Mergers

AMA Opposes Health Insurer Mergers

Created on: Monday, November 16, 2015
Author: Maine Medical Association

In a strongly worded, and extensively footnoted, 17-page letter to the head of the Justice Department’s Antitrust Division, AMA Chief Executive Officer James L. Madara, MD, voiced the opposition of organized medicine to the proposed acquisitions of Cigna by Anthem and of Humana by Aetna, mergers that would effectively reduce the number of national health insurance companies from five to three. Dr. Madara pointed out the significant risk of consumer harm, in terms of health care access, quality and affordability, presented by what he called the “anticompetitive effects of insurers’ exercise of market power.”

A summary of the major points in Dr. Madara’s letter, based on data compiled by the AMA and others, follows. (Quotations are from Dr. Madara’s letter.)

·       “The proposed mergers are occurring in markets where there has already been a near total collapse of competition.” Health insurance is a market that is extremely complex and costly for insurers to enter. In addition, insurers must start with sufficient business to permit the spreading of risk. The difficulty of entering this market is demonstrated, in part, by the recent difficulties encountered by health insurance co-ops created under the ACA. Those barriers, combined with the power inherent in one massive provider’s market position, would likely limit competition in this marketplace long into the future.

·       “A growing body of peer-reviewed literature suggests that greater health insurer consolidation leads to consumer price increases, as opposed to greater efficiency or lower health care costs.” This research indicates that the mergers would lead to a decrease in the quality of health insurance plans available to consumers and reduce the incentive to offer broader networks and compete through increased responsiveness to patients’ access needs. Narrower network plans limit patient access.

·       “Health insurer monopsony, or buyer power, acquired through the proposed mergers would, as the Department of Justice has found in earlier cases, likely degrade the quality and reduce the quantity of physician services.” Where there is essentially just one buyer of services in a particular marketplace, one health insurer, that buyer can exert a high degree of influence over the practices of the sellers of those services. Physicians, through pressure from limitations on income, would be forced to spend less time with patients, limit their investments on new equipment, staff and other practice infrastructure, and spend more time in “production” at the expense of additional education, quality and other practice improvements. Eventually such pressures could well motivate physicians to retire early or to seek more lucrative employments outside medicine, an opinion expressed by six in 10 physicians in a recent Deloitte survey. With our current shortage of primary care physicians in the U.S., those pressures cannot help to improve health care for patients. When single buyer power is combined with that buyer also being a monopoly seller of insurance to patients, the effect is multiplied and patient costs are increased, not decreased.

·       “There is no evidence supporting the insurer’s claim that the proposed mergers would lead to greater efficiencies and innovative payment and care management programs. There is also no economic evidence that consumers benefit when health insurers merge to respond to hospital consolidation by acquiring countervailing power.” In fact, studies of previous health insurer mergers demonstrate that they resulted in higher, not lower, insurance premiums. “There is… no economic evidence that the formation of bilateral hospital/health insurer monopolies—a battle between proverbial Sumo wrestlers—benefits consumers.”

·       “Fostering competition, not consolidation, benefits American consumers through lower prices, better quality, and greater choice.” A competitive market for physician services has been demonstrated to be best for patients’ pocketbooks.

The AMA has long held the view that increased competition in health insurance, not consolidation, is in the best interest of both physicians and patients. Competition fosters negotiation among involved parties rather than the imposition of terms by one tremendously powerful party upon a number of smaller and far less powerful parties. But according to Leemore Dafney, Ph.D., a professor at Northwestern University’s Kellogg School of Management who testified about health insurer consolidation before the Senate Judiciary Committee in September, “Consolidation leads to premium increases. This is true notwithstanding the growing body of research that finds insurers with larger local market shares pay lower rates to healthcare providers, particularly hospitals.”


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