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United Hospital Fund Report Examines Merger Impact on New York's Health Insurance Market

Recently, the proposed mergers of Anthem-Cigna and Aetna-Humana have attracted attention and criticism from legislatures, antitrust regulators, healthcare providers, and consumers. A new working paper from the United Hospital Fund examines the two merger plans’ impact in New York, explains the review process that is currently being conducted by federal and state officials, and sets the proposed mergers in the context of Affordable Care Act and the health care landscape.

The authors begin with an introduction to the antitrust investigations of the health insurance mergers. Both the Federal Trade Commission and the Department of Justice (DOJ) enforce antitrust laws through civil and criminal actions; the DOJ handles insurance mergers and the Federal Trade Commission provider mergers. Both agencies have the power to completely reject mergers or to require companies to divest themselves of certain business lines in areas where there is market share overlap. The New York Attorney General also has the power to enforce federal and state antitrust laws. And finally, the Superintendent of Financial Services can disapprove merger applications if needed to “protect the interests of the people of the state”, looking at many different factors.

Antitrust regulators at the DOJ are currently examining the mergers alongside fifteen state attorneys general. Connecticut insurance regulators are leading 26 states in reviewing the Anthem-Cigna merger. Four states have approved the merger, while 22 states have yet to make their decision. Aetna claims to have received 10 out of the 20 state approvals required to move forward. The basis for the reviews is market concentration, measured on an index from 0 to 10,000. Markets with index values below 1,500 are considered unconcentrated, those between 1,500 and 2,500 are moderately concentrated, and those with index values above 2,500 are highly concentrated.

The study then examines the merging companies and their activities in New York. In 2014, Anthem and Cigna had over $7.4 billion in New York health insurance premiums, placing them second in market share. The two companies mostly rely on different business areas for revenue although they are both active players in the employer-sponsored insurance large group market. Their combined fully insured, employer-sponsored coverage is about 487,000 covered lives in New York. It is also unclear how a combined Anthem-Cigna company would organize its business in order to comply with Blue Cross rules.

In 2014, Aetna and Humana had $3.4 billion in health premiums in New York, and Aetna accounted for over 90% of that total. Aetna is active in all commercial markets and has over two covered lives. By contrast, Humana operates mostly in the Medicare market, along with some vision and dental plans. The Medicare market is the only area in New York where the two companies significantly overlap. Aetna’ s acquisition of Humana would increase its Medicare presence by adding $113,000 Medicare Part D members, about 10% of New York’s overall Medicare Part D Market.

The proposed Anthem-Cigna and Aetna-Humana mergers are not the only deals taking place. Drug manufacturers Pfizer and Allergan are attempting to merge, and Walgreen is working to purchase Rite Aid. Hospitals have been combining as well, and federal regulators have recently blocked several hospital mergers. Regulators and policymakers are also working to promote value-based payments and multiplayer approaches toward health care across public programs and commercial insurance coverage, which may be easy for larger provider or insurer groups.

New York regulators will have important decisions to make concerning the Anthem-Cigna and Aetna-Humana mergers in the context of a rapidly changing health care system. The report concluded that policymakers should work to reform the health care system but at the same time aim to preserve competition’s benefits for consumers.

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