Other factors are fueling the proposed Aetna-Humana and Anthem-Cigna marriages.
Republican lawmakers and their friends in Washington’s conservative think tanks have put forth another reason Americans should hate Obamacare: it’s making the country’s biggest insurance companies gobble each other up. If the recently announced deals actually happen, they say, we’ll have fewer insurance choices.
When the CEOs of Aetna and Humana announced a few days ago that they had agreed to a deal in which Aetna will pay $37 billion for Louisville-based Humana, Senate Majority Leader Mitch McConnell of Kentucky pointed the finger of blame straight at Obamacare.
“This morning’s announcement, as I predicted during the debate five years ago, is the inevitable result of Obamacare’s push toward consolidation as doctors, hospitals, and insurers merge in response to an ever-growing government,” McConnell said on July 3.
Added Edmund Haislmaier of the Heritage Foundation: “The incentives are in there for consolidation. For all the talk about competition, it’s really much more about consolidating everything so the government can better manage it.”
You can’t expect McConnell and Haislmaier to pass up an opportunity to reinforce their false meme that Obamacare represents a government takeover of health care. Their sound bites undoubtedly will resonate with the GOP’s base.
The reality, though, is that Aetna’s proposed acquisition of Humana and Anthem’s $54 billion bid for Cigna—and UnitedHealthcare’s reported interest in Cigna—is McConnell’s and Haislmaier’s beloved free market at work.
And in an ironic twist, the GOP’s insistence that billions of Medicare dollars must flow through private insurers is a major factor in the recent flurry of M&A announcements. It might ultimately even mean that Kentucky could lose thousands of good-paying jobs as Aetna’s executives begin laying off employees they consider redundant.
There are three big reasons for the recent spate of corporate marriage proposals in the health insurance business, and not one of them has anything to do with Obamacare.
Size matters: As I noted last week, the big five for-profit health insurers (Aetna, Anthem, Cigna, Humana and UnitedHealthcare) are the result of several deals that were consummated in the mid- to late 1990s. The consolidation occurred because the more health-plan enrollees an insurer has in a given market, the more leverage it has at the negotiating table with hospitals and physician groups. An unintended consequence of that consolidation, however, was self-defense consolidation on the provider side. Just about every city in the country has seen its hospitals combine. Hospitals have merged with each other to regain the negotiating clout they lost temporarily after consolidation in the insurance industry.
Changing demographics: The average age of Americans has been increasing for several years, primarily because of the aging Baby Boomers. Millions of Boomers are becoming eligible for Medicare every year, and the Medicare program has contributed billions of dollars in revenue and profits to the insurers that participate in the private Medicare Advantage program, which wouldn’t exist without its Republican champions in Congress. One of the main reasons Aetna wants Humana is because of Humana’s huge Medicare Advantage membership. An Anthem-Cigna deal would also give the combined company a large Medicare Advantage enrollment. Both Anthem and Cigna have bought smaller Medicare Advantage insurers in recent years to increase their presence in the program.
A shrinking employer-based health insurance market: Although the vast majority of Americans with private health insurance get their coverage through the workplace, employers no longer present insurers with growth opportunities. This is especially troublesome for Cigna and Aetna, which have long been known as companies that cater to large employers. When I left Cigna in 2008, about 85 percent of its members were enrolled in large employer-sponsored plans. In recent years, however, the only way the big insurers could increase their membership in employer-sponsored plans was to steal market share from each other or to acquire each other. As the Urban Institute noted in a report last month, enrollment in employer-sponsored plans fell 11 percent between 2000 and 2012—two years before most of the provisions of Obamacare went into effect—from 76.9 percent to 69.4 percent. Fueling the declines were the growing numbers of workers who chose to opt out of employer-sponsored coverage because of the cost and the growing numbers of employers that chose to stop offering coverage to workers’ dependents.
Interestingly, Obamacare appears to have halted this erosion. Membership in employer-sponsored plans has remained stable over the past couple of years, according to the Urban Institute researchers.
So the next time you hear a politician or pundit claim that Obamacare is to blame for the dwindling number of big for-profit insurers, know that they either don’t know what they’re talking about or they’re trying to mislead you. More than likely it’s some of both.
Wendell is a senior analyst at The Center for Public Integrity where this first appeared on 7/13/2015.