Mergers Move Toward Value-Based Care, Insurers Say

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By Sara Hansard

Sept. 22 — Merging four of the five largest health insurers into two companies will help move the U.S. health-care system away from fee-for-service toward value-based care, the heads of two companies that have proposed acquisitions told a congressional panel Sept. 22.

“Together, Anthem and Cigna will have the resources and capabilities to offer a broader portfolio of products and services to keep health benefits more affordable, and to promote accountable, higher-quality health care for consumers,” Joseph Swedish, president and chief executive officer of Anthem Inc., said at a Senate Judiciary subcommittee hearing on health insurance consolidation. If Anthem is allowed to purchase Cigna Corp. as it has proposed, the combined analytic capabilities of the companies “will empower better informed decision-making between patients and physicians,” and the merger will expand value-based accountable care models, he said.

Swedish also said “it is important to recognize that health care is fundamentally local.” Aetna Inc. Chairman and CEO Mark Bertolini, whose company has proposed buying Humana Inc., said the acquisition would allow the merged company to be more evenly balanced between commercial and government products, such as private Medicare Advantage (MA) and Medicaid plans.

Medicare Advantage Competition `Robust.'

The proposed acquisition of Humana, the fifth largest insurer, by Aetna, the third largest insurer, “is largely about MA and pricing,” Bertolini said. Of the 54 million beneficiaries in Medicare today, 37 million receive their care through fee-for-service payment systems, with the remaining 17 million getting care through MA plans, he said. “Robust choice and competition will remain in the Medicare market” if Aetna buys Humana, with 143 companies offering MA plans and 28 new health plans joining the market in the past three years, of which 15 are owned by providers, he said.

MA coverage is offered in about 3,100 of the nation's approximately 3,200 counties, Bertolini said. MA beneficiaries have an average of 18 plans to choose from, and even in rural areas there is an average of 10 plan choices, he said. If the transaction is approved by the Department of Justice, only 8 percent of Medicare beneficiaries will receive benefits from Aetna or Humana, he said.

There is little overlap between Aetna and Humana in the commercial market, with Humana representing less than 2 percent of the commercial market and no national employer market presence, Bertolini said. Aetna represents less than 12 percent of the commercial market, and in Affordable Care Act exchanges Aetna and Humana overlap in only eight states where 10 other insurance companies compete, he said.

“We believe there will be no material change for the competitiveness of the commercial insurance market as a result of our transaction,” Bertolini said.

Little Overlap Between Anthem, Cigna

Swedish also said there is “very limited, and in most areas no market overlap between Anthem and Cigna,” and competition “will continue to flourish” if the transaction is completed. Anthem is the second-largest insurer and the largest BlueCross BlueShield (BCBS) plan, while Cigna is the fourth-largest insurer. The largest insurer, UnitedHealth Group Inc., has not proposed any mergers.

As a member of the Blue Cross and Blue Shield Association, Anthem is subject to the “best efforts” rule, which requires that no more than one-third of Anthem's total health-care revenue can come from non-Blue brand health plans, said Sen. Mike Lee (R-Utah), chairman of the Subcommittee on Antitrust, Competition Policy and Consumer Rights. He questioned whether that would limit Anthem's ability to compete under the Cigna brand.

Swedish said Anthem is licensed as a BlueCross BlueShield plan in 14 states and it doesn't compete in other states. In the “non-Blue” states outside of the 14-state area, Cigna would compete against BlueCross BlueShield plans, and within the 14-state area Cigna products would be become part of Anthem's portfolio, he said. However, for national accounts Cigna would still continue to compete as Cigna, he said.

Anthem would have two years after the transaction closes to adjust its portfolio to comply with the BCBS best efforts rule, “but we do not believe that would be an impediment to the deal, nor do we believe that would present any kind of competitive deterioration in the market,” Swedish said.

Hospitals Warn of Dominant Insurers

Rick Pollack, president and CEO of the American Hospital Association, testified that leaving just three dominant health insurers could make health care more expensive for consumers in the commercial market as well as for Medicare Advantage plans. If the acquisitions take place, the three largest health insurers, which last year had more than $345 billion in revenue, would cover more than 131 million lives, or about 40 percent of Americans who have health insurance, he said.

“We're also concerned about the negative consequences for consumers and health-care providers that could result from further entrenching the power of the BlueCross and BlueShield system, whose plans dominate the market in nearly every state,” Pollack said.

Pollack also said “another likely casualty” of the deals could be to slow the momentum hospitals have established in improving health-care delivery. “Despite claims that commercial insurers are fostering innovation, they continue to benefit financially from both squeezing provider payments and riding the wave of hospital efforts that are resulting in more efficient and higher quality care,” he said.

Hospital price increases are at historically low levels—less than 1 percent in 2015 and less than 1.3 percent in 2014, Pollack said. “There is no reason to believe that allowing these insurers to become even larger and more immune from competitive forces would change their incentives to sit mostly on the sidelines and reap considerable financial rewards of providers' innovation,” he said.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com