Rising Premiums Will Not Be Reduced By Health Insurance Mergers

Since 2000, workers’ contributions to premiums have greatly outpaced wage growth, leading to consumers struggling to pay their premiums and in many cases put off receiving healthcare due to increased costs. One of the arguments that Anthem, Cigna, Aetna, and Humana have made when arguing for their proposed mergers is that the acquisitions will benefit consumers by leading to greater efficiencies and ultimately lower costs. This claim is misleading and inaccurate: there is substantial evidence that these merger will lead to even higher premiums, making a serious problem even worse.

The skyrocketing cost of premiums is a national issue, and consumer groups, legislators, and healthcare providers are increasingly concerned. In 2015 annual premiums reached $17,500 for an average family. In 2016, there were double-digit increases in premiums in 21 states, and premiums increased 6% nationwide for all Affordable Care Act marketplace health plans.

Consider the example of California. From 2011 to 2016, premiums in the California individual market increased on average 8.5 percent per year, and Anthem, the largest insurer on the California exchange, received double-digit rate increases for health care products in five different regions. In 2015, the California Department of Insurance found that Anthem failed to justify the average 8.7% premium increase it imposed on consumers with individual grandfathered health insurance policies, which impacted 170,000 people. Anthem refused to lower the rate, which would have saved California consumers about $33.6 million.

In 2014, the California Department of Insurance also found that Anthem’s 9.8% average rate increase on small employers, which affected 120,000 consumers, was excessive and unreasonable. Anthem slightly reduced its rate increase to 8%, and the Department continued to find that unreasonable. Had Anthem reduced its rate increase to the 2.1% requested by the Department, California consumers would have saved $33 million. And in 2013, the Department found Anthem’s 10.5% average rate increase for small group products unreasonable, and in 2012 it found Anthem’s 6.5% increase unreasonable as well. The pattern is clear: over the last few years, Anthem and other health insurance companies have been raising premiums much faster than wages or the cost of living, leading to rising healthcare costs and a crisis of healthcare affordability for ordinary Americans.

The issue of rising premiums is not confined to California but is present throughout many other states. In Indiana, the premiums offered in 2014 were 28% higher than the average premiums in the 36 states where the federal government is operating exchanges, and in 2015 Anthem ordered a 21.9% rate increases for its group health prescription drug coverage. In Iowa in 2015, the Iowa Insurance Division approved double-digit rate increases for its three largest companies, with the largest being a huge 28.7% increase for Wellmark. In Wisconsin in 2015 six health insurance companies asked rate increases of 10% to 33%, after average individual monthly premiums increased steadily over the last few years from $205.84 in 2010 to $237.51 in 2013.

In New York, consumers already pay of the highest premiums in the country, with an average individual monthly premium of $428.54 in 2013, the third highest nationwide. Moreover, in 2016 New Yorkers will see on average a 7.1% premium increase in the individual market and a 9.8% premium increase for small group insurance. From 2015 to 2016 in Illinois, insurers raised premium rates by double digits, and Humana received a 19.1% increase for its health maintenance organization plan. In Ohio from 2015 to 2016, premiums on its health insurance exchange increased by an average of 13%, and even after rate review, Aetna was able to raise its rates by 13.2% and Humana raised its rates by 19.25%.

And for Virginia in 2016, insurers proposed premium increases of between 11% and 14% for those purchasing plans outside the health exchange. Aetna requested an average increase of 19.4%, Anthem requested an average of 8%, and Humana requested a 12.4% increase for silver level plans offered on the exchange.

The U.S. Census Bureau stated in September 2014 that median household income was $51,939 in 2013. For an average family, annual premiums have just surpassed $17,500. That’s roughly a third of income dedicated just to the cost of premiums, not to mention the cost of deductibles. Kaiser Family Foundation data shows that per capita inflation adjusted health insurance spending has risen from $250 in 1960 to $6,964 in 2014.

Senator Chuck Grassley (R-IA) has noted there are concerns that “these recent proposed insurance company mergers could lead to even higher premiums.” Such concerns are well founded; the evidence is clear that increased consolidation in the health insurance industry leads to higher premiums. Two studies of past health insurance mergers have found that after the merger, companies significantly increased premiums and consumers had to pay more. The first study examined the 1999 Aetna-Prudential merger, and found that it led to a 7% additional premium increase in 139 separate markets across the nation. The second study examined the 2008 United-Sierra merger and concluded that this deal led to an additional 13.7% premium increase in Nevada. Additionally, dominant insurers can increase rates significantly more than smaller insurers competing in the same state, and if Anthem acquires Cigna and Aetna acquires Humana, they will be dominant in many markets.

Given the immense size and complexity of the proposed mergers, they will likely have a strong impact on premiums. Past mergers indicate that if these mergers are allowed to proceed, the resulting companies will use their new power to raise premiums. Consumers are already facing rising health care costs, and the Anthem-Cigna and Aetna-Humana mergers would make matters worse. Ordinary folks would have to pay even higher premiums and they would have significantly less bargaining power or alternatives if they do not like their choices.

There are few arguments in favor of the mergers. The claim that they will lead to lower costs for consumers and reduced premiums is especially egregious and inaccurate. Rising premiums are harming millions of Americans, and these two proposed mergers of Anthem-Cigna and Aetna-Humana would lead to further increases. Consumer advocates, healthcare providers, and antitrust regulators should not be fooled by these arguments, and should be aware that the mergers will make a serious problem even worse.