Do 3 Big Insurers Flash Red For Govt? Mergers Get Close Look

WASHINGTON (AP) — Would a reduction from five health insurance giants to three trigger a flashing light for regulators concerned about industry competition?

         That's how many big companies could remain after the proposed combinations of Anthem with Cigna and Aetna with Humana, and experts say it would at a minimum bring close scrutiny of the deals.

         At only three companies, "The agencies' ears tend to perk up," said Allen Grunes, who led merger investigations at the Justice Department as an antitrust attorney. "The underlying economic concerns start to really kick in," said Grunes, a co-founder and attorney at the Konkurrenz Group in Washington.

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         In this case, the Justice Department will have to pass judgment on Anthem's planned $48 billion acquisition of rival Cigna, a deal that would create the nation's largest health insurer by enrollment with about 53 million U.S. patients. The antitrust attorneys and economists at Justice will also be examining Aetna's $35 billion deal for Humana.

         The question is whether the mergers would hurt competition and consumers, making the companies so dominant that they could push already high health-care costs even higher.

         "This will be a very lengthy and complicated process," said Robert Bell, an antitrust attorney at Hughes Hubbard.

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         Health care is one of three major industries — along with food and energy — that are especially important to the economy and consumers, and so they receive a careful review from regulators, he said.

         "I think the government's going to be extremely cautious about reducing the number of major health care carriers down to three," Bell suggested. "I would be very surprised if both mergers were permitted to go through."

         The proposed deals also are likely to draw the attention of state attorneys general, he said.

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         Among the factors the government likely will examine:


—What does competition look like in the markets — in states and for different insurance products — where the companies now operate, and how might that change after the mergers?


—How easy is it for new competitors to enter those markets? If the number of big companies is reduced, would new ones come in to fill the gap?


— What is the impact of the health-care overhaul law on competition in the industry?


         But health-care policy consultant Dan Mendelson said that when the Justice Department monitors review the mergers, they'll look at them on a local, not national, level. Health care is local, and the two proposed mergers don't involve much geographic overlap, he said. That means they wouldn't create the sort of consolidation involved in other industries such as telecommunications, in his view.

         "I think by historical standards these mergers go through," said Mendelson, who is CEO of Washington-based consulting firm Avalere Health. "They go through because there is not a lot of overlap, and they create efficiencies and allow companies to spread (costs) across a lot more people."

         Mendelson acknowledges that the question here will be whether the historical standards hold.

         The picture is complicated by the fact that the insurance industry is regulated by states, not the federal government. States decide how insurers can conduct business and what new companies can enter the market.

         Some states have a very competitive environment for health insurance, while in others a few companies dominate the market, said Jesse O'Brien, a health care advocate with the U.S. Public Interest Research Group. He puts Oregon, California and New York among those in the competitive category, and West Virginia, Illinois and Michigan in the category with a few dominant companies.

         For the government regulators, "There's kind of a balancing act that needs to be struck," O'Brien said.

         – by AP Reporter Marcy Gordon




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