Divestitures Will Not Maintain Competition in Medicare Advantage

Divestitures have been increasingly criticized for being ineffective and failing to restore markets to their pre-merger condition. Previously, we reviewed a Capitol Forum study of the 2012 Humana Arcadian divestitures in Medicare Advantage. The study showed how these divestitures failed to adequately restore competition in those health insurance markets.

Now the Center for American Progress has released a report further building on the Humana-Arcadian merger conclusions.

In this analysis of the Aetna-Humana merger, they argue that competition between Aetna and Humana in the Medicare Advantage market keeps individual plan premiums lower in counties where they compete. By comparing the merger to the Humana Arcadian deal, the authors conclude that if the merger is approved, it will likely result in higher premiums for seniors, greater consolidation in already highly concentrated insurance markets, and increased costs for Medicare and taxpayers. They further argue that claims made by proponents of the acquisition are incorrect: Divestitures will not solve the problems posed by this merger, and that traditional Medicare is not a competitor for Medicare Advantage.

If the Department of Justice (DOJ) approves the Aetna-Humana merger, it will likely by on the condition that the companies divest in markets where their resulting market concentration and power would be too great. DOJ states that divestitures must be large enough to enable purchasers to preserve competition and effectively compete in the relevant markets. In 2012, DOJ approved a merger between two Medicare Advantage insurers-Humana and Arcadian-but required that they divest 15 plans that enrolled about 12,700 MA members across 51 counties in 5 states. The plans were acquired by three companies—Vantage Health Plan, WellCare, and Cigna—that were approved by DOJ to be long term competitors.

The aforementioned Capitol Forum report showed how the divestitures largely failed at preserving competition. The Center for American Progress analyzed the divested plans and found that only 2 out of the 15 plans are still offered today, and real competition was short-lived in these markets. As of today, only Vantage Health Plan is still a successful competitor. Wellcare and Cigna both failed and exited the affected Medicare Advantage markets.

Not only did the acquirers exit most of the divested markets, but they frequently raised premiums for the divested plans during the short time they stayed. Of the 15 total plans divested in 2012, 9 had premium increases following divestiture. And of these plans, the average monthly premium went up from $28.56 in 2012 to $41 in the last year the plan was offered—a substantial increase of 44% and much higher than annual medical inflation.

Any DOJ approval of the proposed Aetna-Humana merger would require divestitures on a much larger scale—over 400 markets and hundreds of thousands of lives. In the much smaller Humana Arcadian merger, divestitures failed and the results were less competition and higher costs for consumers. This study strongly implies that any successful divestitures will be unsuccessful in restoring competition, and that this merger is, to quote Senator Amy Klobuchar, “too big to fix.”