Blumenthal Reiterates Call for Intense Scrutiny of Health Insurance Mergers at Senate Judiciary Committee Hearing

Consumers choice would decrease, premiums could rise if DOJ approves Aetna-Humana and Anthem-Cigna mergers

“I’m deeply trouble by the evidence that shows that neither providers nor consumers benefit from these consolidations… the Prudential-Aetna experience shows that premiums are not lowered, that consumers do not benefit, and that the savings are not passed along to consumers.”

(WASHINGTON, DC) – Today at a Senate Judiciary Committee hearing on the changing health insurance market landscape, U.S. Senator Richard Blumenthal (D-Conn.) warned against the probable negative impact that massive consolidation within the health insurance industry would have on consumers. Blumenthal noted the barriers of entry that exist in the health insurance market refuting claims that future potential competition would alleviate competitive harms of the mergers. Blumenthal urged the U.S. Department of Justice (DOJ) to analyze market repercussions on a national scale, in addition to local, reiterating his request made in a letter to the DOJ in July.

“Both of these proposed deals raise those serious competitive concerns and in addition to conducting a market-by-market analysis, I believe that the Department of Justice also must scrutinize these mergers together – all together – as part of a single, national healthcare market. And the goal has to be to sustain – and enhance, if possible – competition and protecting consumers,” Blumenthal said at the hearing.

“We’ve seen it in other industries and we’ve seen the consequences of it, in higher prices, in this instance, potentially higher premiums and I’m deeply trouble by the evidence that shows that neither providers nor consumers benefit from these consolidations; in other words, that the Prudential-Aetna experience shows that premiums are not lowered, that consumers do not benefit, and that the savings are not passed along to consumers.”

“There are powerful barriers to entry…I can’t just start an insurance company that will have any hope of competing with the combined entity once this transaction is completed. Yes, all healthcare is local, like all politics is local, but there is national politics, there are national markets, and those markets are profoundly important for the Department of Justice to review in scrutinizing this merger, because of the barriers to entry, and that’s true of other industries as well…My hope is that the DOJ will look at the national market, rather than only the local markets because insurance is not all local.”

Watch the Senator’s full comments at the hearing HERE.

Full transcript:

BLUMENTHAL: Thank you all for being here today. I am deeply concerned about these mergers because of the potential effect on competition and the concentration of power in fewer hands and I’ve expressed those concerns publicly. In some sense I have a feeling that, like the saying about marriage, ‘that this merger may be the triumph of hope over experience,’ the experience that is suggested by a lot of the scholarship done in this area is that consolidation is so rapidly taking over this industry. We’ve seen it in other industries and we’ve seen the consequences of it, in higher prices, in this instance, potentially higher premiums and I’m deeply trouble by the evidence that shows that neither providers nor consumers benefit from these consolidations; in other words, that the Prudential-Aetna experience shows that premiums are not lowered, that consumers do not benefit, and that the savings are not passed along to consumers.

When viewed together, I think both of these proposed deals raise those serious competitive concerns and in addition to conducting a market-by-market analysis, I believe that the Department of Justice also must scrutinize these mergers together – all together – as part of a single, national healthcare market. And the goal has to be to sustain – and enhance, if possible – competition and protecting consumers.

I want to focus in particular on an area that has not been covered so far and that is the issue about barriers to entry. As you may know, in 2010 former Assistant Attorney General Christine Varney explained the results of a review of the antitrust division into the question of barriers to entry in the insurance marketplace and this was her conclusion before the American Bar Association, ‘our conclusions reinforce our concern about strong barriers to entry and expansion in health insurance markets and are particularly significant in light of the enactment of the Affordable Care Act. It is therefore imperative that the Division prevent mergers or acquisitions that will create, or even increase, the size of dominant health insurance plans, particularly in the small group and individual markets. Entry defenses in the health insurance industry generally will be viewed with skepticism,’ she was talking about the Department of Justice, ‘and will almost never justify an otherwise anti-competitive merger.’ The suggestion has been made and I think it has been a pillar of the argument for this merger that these barriers to entry are insignificant and I think experience belies that contention, as Assistant Attorney General Varney explained. I’d like responses from Mr. Bartolini and Mr. Swedish, if you will, please.

BERTOLINI: Thank you for the question, Senator. I understand your point of view. I would like to make clear of what the data shows us in the markets where we compete. In Medicare Advantage, there is plenty of competition – 28 new entrance, more than half hospital systems over the last three years. More and more hospital provider systems are entering the market – more than 70 new competitors on the public exchanges. In the public exchanges where we have overlap between Aetna and Humana, there are at least 10 other competitors. Investments by Wall Street, private equity, and venture capital into healthcare and starting new health plans, is evidenced by Oscar in New York, where Google just this last week invested $32.5 million dollars in furthering their expansion in the New York marketplace. All healthcare is local, just like politics. At the local level, we continue to see more and more entrance and we continue to see more competition. We are not at all concerned by the lack of competition in the local markets. In Medicare Advantage specifically, the government sets a benchmark which requires us to beat, in order to offer a zero premium plan to consumers. So we have over the last five years, from 2010, reduced rates by 6% in Medicare Advantage, to the benefit of seniors with a higher quality product and a more affordable product each year.

BLUMENTHAL: Mr. Swedish?

SWEDISH: Thank you, Senator. If I understand the question it’s dealing with barriers to entry and the perception that barriers do exist such that new entries cannot come into the marketplace.

BLUMENTHAL: There are powerful barriers to entry, notwithstanding what Mr. Bertolini said, and I understand your point and respect it. I can’t just start an insurance company that will have any hope of competing with the combined entity once this transaction is completed. Yes, all healthcare is local, like all politics is local, but there is national politics, there are national markets, and those markets are profoundly important for the Department of Justice to review in scrutinizing this merger, because of the barriers to entry, and that’s true of other industries as well, though that’s perspective that prompts my question.

SWEDISH: Yes, sir, and I can appreciate that perspective and what I can share with you is that there are many new players that have entered the market and continue to enter the market. What I’d like to do is begin with reference to Oscar that Mr. Bertolini just brought up. Serving New York and New Jersey, year one of their entry into that highly competitive marketplace, they accumulated 45,000 new members and the company was founded based on venture capital funds and just recently a google investment that will accelerate their engagement in the marketplace with them going to California next year. So, again, one company, multiple products, demonstrated success year one. But let me underscore maybe the bigger view. As we deal with the national marketplace for large groups and national accounts, what we’ve witnessed is 30 new companies that have entered the marketplace, competing in the national account sector. GAO’s report brought out the fact that on average, there are 11 insurers competing with, amongst themselves for national accounts. With respect to another slice of development in the marketplace, PWC in 2014 revealed that 50% of U.S. healthcare systems have or intend to apply for an insurance license. In fact, it was just brought out a little while ago, that in respect to serving public exchanges, 37 provider-sponsored plans now are in the marketplace offering coverage for enrollees in the exchange environment. My point is, is that competition is becoming more robust, not less, with respect to our combination with Cigna, quite frankly we are compatible and complementary companies without a lot of overlap in how we engage in the marketplace, in that regard I believe we will bring great value to our customers and we will compete very effectively in the marketplace by virtue of this combination.

BLUMENTHAL: My time has expired. I want to thank both of you for your very informative responses. I think we’ve only begun to scratch the surface in terms of the data and the material that has to be reviewed by the DOJ and I hope that the scrutiny will be exacting and demanding, as I know you expect it will be, but there seem to be two very different, factually grounded perspectives here. One offered by Prof. Daphne in the charts and testimony that she’s offered, and the other that you presented. I think it may result from the way markets are sliced and diced in the different analysis that are done and my hope is that the DOJ will look at the national market, rather than only the local markets because insurance is not all local.

###