David A. Balto, JD
Brief: SB17-198, non-domestic insurance industry mergers
Public participation in insurance mergers is instrumental to ensure that insurance commissioners can fulfill their statutory duties and that consumers are protected. At a time when studies show an under-enforcement of mergers, the public is becoming more vigilant in protecting themselves from competition-harming mergers.
The recent attempted mergers of Anthem-Cigna and Aetna-Humana show how the public is helping to close the enforcement gap. In states where public participation was encouraged, many consumer groups and representatives filed comments and testified in hearings to raise substantive concerns with the mergers. Public participation based on full access to information was crucial. In states where the proceedings were conducted behind closed doors, the state insurance commissioners approved the mergers with often inadequate analysis. This ended up being at odds with the assessment of the U.S. Department of Justice (DOJ) and many state attorneys general, who challenged the mergers and prevailed in federal district court (nine states participated in the Aetna-Humana challenge and 12 states, including Colorado, participated in the Anthem-Cigna challenge).
SB17-198 is vital for the insurance commissioner’s obligation to protect consumers. It will open the insurance merger process up to beneficial public participation that will aid the Colorado insurance commissioner in properly assessing the competitive impact of proposed mergers.
SB17-198 will bring greater transparency and public participation to non-domestic mergers
Colorado is a highly-concentrated state, which means a small handful of health plans dominate the market. According to the Colorado Health Market Review for 2015, the four largest Colorado insurers, Kaiser Permanente, UnitedHealthcare, Anthem and Humana, have a combined market share of 79.3 percent. This concentration and lack of competition can be costly for consumers.
According to data from the Colorado Division of Insurance, individual market premiums increased statewide by 20.4 percent. This may not come as a surprise, as competition in the individual market is decreasing – with UnitedHealthcare and Humana completely exiting the market and Anthem BCBS and Rocky Mountain Health Plans reducing their offerings. These exits will impact about 92,000 Colorado consumers.
Mergers in particular are often a source of consumer harm. According to Erin Trish, health economics expert at the University of Southern California’s Schaeffer Center for Health Policy and Economics, “when insurers merge, there’s almost always an increase in premiums.” Two separate, retrospective economic studies on health insurance mergers found significant premium increases for consumers post-merger. One study found that the 1999 Aetna-Prudential merger resulted in an additional 7 percent premium increase in 139 separate markets throughout the United States. Another study found that the 2008 United-Sierra merger resulted in an additional 13.7 percent premium increase in Nevada. There is also economic evidence that a dominant insurer can push rates 75 percent higher than smaller insurers competing in the same state.
In highly concentrated states, non-domestic mergers can have just as much impact on the wellbeing of Colorado residents as domestic mergers. For example, in the recent proposed mergers of Anthem-Cigna and Aetna-Humana the insurers were not domestic insurers in many of the states where the proposed mergers were projected to have substantial impact. Consumers in these states had the same need to be protected by transparency and process as they would if domestic insurers were merging.
For these reasons, the bill sponsors – Sen. Kevin Priola, R-Adams County, and Rep. Alec Garnett, D-Denver, the Colorado Association of Health Plans and the Colorado Medical Society – should be applauded for reaching an agreement that permits disclosure and public input on non-domestic mergers. Likewise, the Colorado Division of Insurance (DOI) should be complimented for convening the parties, participating in the discussions and operationalizing the agreement for DOI.
Industry-supported efforts to use SB17-198 as a vehicle to overturn current law regarding transparency and public participation on domestic mergers were misguided
The Colorado Senate Committee on Business, Labor and Technology defeated – on a 5-2 vote – an industry-led effort to derail SB17-198 with an amendment to remove full transparency for domestic mergers, including the Form E. Form E summarizes important market share information that the public needs to evaluate the impact of a merger.
The recent mega-mergers of Aetna-Humana (blocked in federal court) and Anthem-Cigna (previously under appeal in federal court) highlight the need for greater transparency and public oversight. DOI approved the Aetna-Humana merger without public notice or hearing, despite pleas for participation by providers and consumers, and there are examples from other states of failures in the state insurance regulatory review process.
It is vitally important, especially in light of studies that show an under-enforcement of anticompetitive mergers, that a robust state review of mergers be transparent, rigorous and inviting of public participation. Such a process improves the ability of the insurance commissioner to gather useful information and helps avoid the appearance of impropriety. This can be seen in states like California, where an open process with public hearings was held on both the proposed Anthem-Cigna and Aetna-Humana mergers. These hearings were televised and included panels composed of providers and consumer representatives.
Colorado law requiring an independent investigation of mergers in certain circumstances, such as was conducted recently in United’s acquisition of Rocky Mountain Health Plans, is unique in the country and once again demonstrates the sensitivity of past General Assemblies to the need for public participation in mergers and acquisitions in Colorado.
Mergers conducted after the state district court’s ruling affirming Colorado’s transparency rules show the usefulness of transparency
The recent state district court ruling in Marguerite Salazar v. Colorado Medical Society affirmed that the General Assembly intended to shine a brighter light on domestic mergers. In this case, Judge Morris Hoffman found that the Form E is not confidential when the merger is domestic, but that under current statute it is confidential when the merger is non-domestic. SB17-198 responds to this ruling by closing the transparency gap and extending basic consumer protections to all insurance mergers in the state of Colorado. Judge Hoffman’s ruling should be applauded for confirming the transparency intent of the General Assembly, and not reversed by industry-sponsored legislative action through SB17-198 that sought to make all Form Es confidential. Instead, through the law, this important process allowing public oversight has been extended to non-domestic mergers that can have just as much of an impact on the wellbeing of Colorado residents as domestic mergers.
UnitedHealth Group’s recent, successful acquisition of Rocky Mountain Health Plans, which was conducted following the district court ruling, shows how the transparency provided by SB17-198 will promote consumer interests without being harmful to the companies. In that merger, UnitedHealth provided the Form E and other documents to provider and consumer organizations. In turn, these organizations examined the materials, participated in the public hearing process, and collaborated with UnitedHealth and Rocky throughout the Colorado DOI process. This collaboration between stakeholders and the merging parties led to better results and consumer protections than could have otherwise been achieved. The UnitedHealth-Rocky Mountain Health Plans merger can serve as a model for future mergers and acquisitions that, with the passage of SB17-198, will serve consumer needs without unduly burdening the parties.
The passage of SB17-198 continues Colorado’s strong record of putting consumers first, bringing vital transparency to the mergers of non-domestic health insurance companies in Colorado. Transparency benefits the process by allowing consumers, providers and their advocates to judge whether and how a merger might harm them and to participate so that their interests are represented.
About the author
David Balto has more than 30 years of experience as a consumer advocate, serving as policy director of the Federal Trade Commission and attorney advisor to Chairman Robert Pitofsky. He litigated nine merger cases in federal court and testified before 14 state insurance commissioners on health insurance mergers. He has represented consumer groups, health plans, unions, employers and providers on various regulatory and competitive issues with respect to the practices of health insurance. He led the consumer opposition to the blocked Aetna-Humana and Anthem-Cigna mergers, in which they testified before 12 state insurance commissioners and the National Association of Insurance Commissioners, and advocated for state departments of insurance to hold public hearings on the mergers.