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Study Indicates Insurance Consolidation Will Lead to Higher Premiums

Marketplace competition matters. It reduces costs, promotes efficiencies, choice and innovation, and helps protect consumers from abuses. Consolidation in an industry generally harms competition and minimizes these beneficial effects, especially in the health insurance industry.

The recent proposed mergers of Anthem and Cigna and Aetna and Humana are quite controversial, and have led to a lively debate about how this consolidation will impact consumers. The merging companies assert that contrary to the usual theory, these acquisitions will actually benefit consumers and not lead to higher healthcare costs and insurance premiums. Supposedly, the larger companies will use their greater negotiating power with hospitals and doctors to hold down healthcare costs, and pass the benefits along to consumers.

In a recent article in Forbes Magazine, Peter Ubel is skeptical of these claims, and lays out why they are likely inaccurate. He notes that a team of researchers analyzed premiums on the Affordable Care Act health exchanges, and found that the addition of an insurer to the market was correlated with a 2% drop in premiums. This evidence strongly implies that consolidation among health insurers will lead to higher premiums. Additionally, an earlier report by the Congressional Budget Office concluded that when Medicare created a drug benefit, people paid lower prices for that coverage in locations with greater insurance competition.

Ubel also notes that even if healthcare spending is curbed, there is no evidence that the savings will benefit consumers. This is consistent with earlier studies examining mergers, which found that when insurance companies combine, premiums nearly always go up. Insurance competition helps keep premiums lower than they would otherwise be, and since consolidation means the elimination or reduction of that competition, the resulting insurers have a lot less incentive to keep prices low. In 2015, the Commonwealth Fund conducted a study of consolidation in the health insurance industry. It concluded that insurance mergers would result in increased costs, and they would not be limited to insurance premiums. The report found evidence that mergers can impact out-of-pocket costs as well because consumers see increases in deductibles or other insurance-related costs.

The past several months have seen increasing awareness of the fact that antitrust enforcement is an important issue that deserves greater attention, and that insurance mergers rarely if ever benefit consumers. Maintaining competition is essential to protect consumers and ensure that premiums are affordable for ordinary Americans, and given the substantial consolidation already present in health insurance markets, it is all the more important that regulators critically examine these mergers and ask the hard questions.

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