Colorado Medical Society

http://www.cms.org/articles/health-insurance-mergers/

Health insurance mergers

Thursday, September 01, 2016 12:16 PM

Five national health insurance companies compete to offer services to tens of millions of patients and hundreds of thousands of employers in the United States. Four of those five companies hope to merge with each other – taking the “Big Five” to the “Remaining Three.”1 Anthem, Inc. seeks to purchase Cigna Corporation for $54 billion in what would be the largest merger in the history of the health insurance industry, and Aetna, Inc. seeks to acquire Humana, Inc. for $37 billion. The companies claim that their mergers will “increase competition and result in cost savings, efficiencies and other benefits that will make health care more affordable and accessible to consumers” and that “there is ample competition from other competitors.”2

The U.S. Department of Justice, as well as the attorneys general of more than a dozen states, including Colorado, have sued in federal court to prevent the mergers. In stark contrast to the merging companies, the government claims that the mergers would “substantially lessen competition, harming millions of American consumers, as well as doctors and hospitals.”3 Instead of promoting competition, the government argues that the “mergers would reshape the industry, eliminating two innovative competitors – Cigna and Humana – at a time when the industry is experimenting with new ways to lower health care costs.”4

The opposing parties’ claims are irreconcilable.

A federal law known as the Clayton Act serves as the battleground for resolving their arguments. Section 7 of the act states that “no person . . . shall acquire the whole or any part of the assets of another person5 . . . [if] the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”6 Together with the Sherman Act, the Clayton Act has been described as the “the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.”7

Analyzing any transaction to determine whether it runs afoul of the antitrust laws first requires the courts to define and analyze the relevant market. Unless the courts define the relevant market, there is no way they can consider whether the transaction lessens competition or tends to create a monopoly.8 The ultimate test is whether the transaction results in a company holding enough market power that it can dictate terms to consumers because there aren’t enough competitors offering a substitute product.9

For these potential health insurers’ mergers, there are two broad market categories to consider:  product markets and geographic markets.

In the product market, these mergers will first affect the “buyer’s market.” In the buyer’s market, businesses and consumers that purchase health insurance will inevitably have fewer choices and may face higher prices due to the absence of meaningful competition. In truly competitive markets, consumers might expect new insurance companies to enter the field and offer price competition if the existing companies raise prices, but there are relatively high barriers to entering the health insurance markets that will likely discourage new entrants.10 The health insurers counter by arguing that the mergers will allow them to more effectively negotiate with hospital systems and health care providers and “will lead to lower reimbursement rates, which will lead, in turn, to savings for its customers and increased access to medical care.”11 Commentators, however, have cited a body of literature suggesting that health insurer consolidation leads to price increases, as opposed to greater efficiencies or lower health care costs.”12

The merger will not just impact health insurance purchasers and is likely to have a significant effect in the “seller’s market.” The sellers in this case are hospitals and physicians who provide health care to the companies’ insurers. Using the correct legal terminology, the government argues that the mergers not only threaten a monopoly, which is control of the supply of a commodity or service,13 but also a monopsony, which is a market in which there are insufficient numbers of buyers.14 A monopsony in the market for health care services would ultimately hurt consumers if insurers can offer physician reimbursement on a take-it-or-leave it basis, thus leading physicians to reduce the time they spent with patients, defer investments in medical equipment, or even retire from practice. For this reason, more than 70 percent of the CMS physicians in active practice who responded to a survey were opposed to the mergers.15

In the geographic markets, the mergers will affect the national and regional market for employer account, state exchanges and even counties where particular insurers hold a disproportionate share of the market. Because health care delivery often takes place in a local market, especially for primary care, the mergers could significantly limit competition and force consumers into paying for out-of-network services.

Corporate mergers didn’t exist in 1776, but Adam Smith may have foreseen them when he said: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”16 Not all mergers are bad, but there are legitimate reasons to question the impact upon the public when competitors cease competing. For these reasons, the American Medical Association and the Colorado Medical Society have joined the U.S. government and the attorneys general of more than a dozen states in opposing the health insurance mergers.


  1. Ayla Ellison and Molly Gamble, Anthem to buy Cigna — and then there were three: 7 key points, Becker Hospital Review (July 23, 2015) http://www.beckershospitalreview.com/payer-issues/anthem-to-buy-cigna-and-then-there-were-3-7-key-points.html
  2. Answer of Anthem, Inc., United States et al v. Anthem, Inc. et al, ¶¶1-2, Case 1:16-cv-01493 (D.D.C. 2016)
  3. Complaint, United States et al v. Anthem, Inc. et al, ¶¶1, Case 1:16-cv-01493 (D.D.C. 2016). https://www.justice.gov/atr/file/878206/download
  4. Complaint, United States et al v. Anthem, Inc. et al, ¶¶1, Case 1:16-cv-01493 (D.D.C. 2016). https://www.justice.gov/atr/file/878206/download
  5. The definition of “person” includes business entities, such as corporations. 15 U.S.C. §12
  6. 15 U.S.C. §18
  7. United States v. Topco Associates, 405 U.S. 596, 609 (1972)
  8. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 459 (1993)
  9. United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 393 (1956)
  10. David Hyman, Improving Health Care: A Dose of Competition/A Report by the Federal Trade Commission and the Department of Justice, Chapter 6 – Page 25 (Hyman, D.) (July 2004)
  11. Answer of Anthem, Inc., United States et al v. Anthem, Inc. et al, ¶¶1, Case 1:16-cv-01493 (D.D.C. 2016)
  12. Paul von Ebers, Mega Health Insurance Mergers: Is Bigger Really Better?, Health Affairs http://healthaffairs.org/blog/2016/01/22/mega-health-insurance-mergers-is-bigger-really-better (Jan. 22, 2016) (citing literature)
  13. Black’s Law Dictionary (10th ed. 2014)
  14. Black’s Law Dictionary (10th ed. 2014)
  15. Ed Sealover, Colorado med groups want tough state scrutiny of Anthem-Cigna merger, Denver Business Journal, (June 2, 2016) http://www.bizjournals.com/denver/news/2016/05/31/colorado-groups-press-for-closer-look-at-anthem.html?ana=lnk&ed=2016-05-31&j=73638842&s=article_du&t=1464730650
  16. Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, Great Books of the Western World 55 (R. Hutchins & M. Adler eds. 1952)