Virginia joins the fight against proposed union of health insurers
In the long-running war between insurance companies and health-care providers, each side makes the same claim: Our mergers are better than your mergers.
Federal and state regulators don’t seem very fond of either argument, which is a main reason that for at least the near-term the status of the health-care business is in limbo.
The current front line in that fight is the proposed mergers of insurance giants — a $54 billion Anthem and Cigna deal and a $37 billion combination involving Aetna and Humana. Announced last year, both now are on hold, facing challenges on antitrust issues from the U.S. Department of Justice and some state attorneys general, including Virginia’s Mark Herring.
What the mergers might mean for Virginia’s health-care sector and for consumers is complicated and for now, uncertain if not confusing. The State Corporation Commission’s Bureau of Insurance, for example, reported in March that it didn’t recommend opposition to the Aetna-Humana merger.
Herring, however, is against both mergers. In late July, he joined the legal challenge against them. In a statement, he called the proposed deals “illegal, anti-consumer moves that would reduce competition, eliminate choices, stifle innovation, and drive up costs by allowing four of the largest health insurers in the nation to merge into two exceptionally large providers.”
A week later, the Bureau of Insurance recommended the SCC oppose the Anthem-Cigna merger, saying it would hurt competition in the large-group market, with the potential to harm policyholders and the general public. In Virginia, Anthem is the largest commercial carrier in the large-group insurance market, which offers plans for companies with 50 or more employees. Combined, Anthem and Cigna would have about 25 percent of that market.
Anthem Virginia spokesman Scott Golden said in a statement that the company disagrees with the insurance bureau’s decision but expects “to have continued constructive dialogue with the commonwealth.” He said Anthem is “confident we can address their concerns, complete the transaction and deliver its benefits at a critical time when American consumers are seeking high-quality health-care services with greater value at less cost.”
The insurance bureau recommended Anthem get 30 days to propose changes “that may alleviate the competitive concerns” cited in its report.
The SCC has authority only over the business that Anthem and Cigna do in Virginia. While the insurance bureau recommended that the SCC reject the merger, the SCC hasn’t scheduled a vote yet. The three-member commission eventually will rule on the merger application, SCC spokesman Ken Schrad said in an email.
The Anthem-Cigna deal is obviously complicated by the federal and state-level opposition. The terms of the merger are very likely to change as Anthem and Cigna try to get past regulators’ criticisms. If changes are made, the companies can resubmit their plans to the SCC. If the merger proceeds without satisfying the objections raised in Virginia, the SCC has the option of suspending the combined company’s license to operate here.
Business case for deal
Doug Gray, executive director for the Virginia Association of Health Plans, says the Anthem-Cigna deal “should be good for employers” because Anthem would gain more customers and could negotiate a better deal with health-care providers on the employers’ behalf.
Self-insured companies hire insurers like Anthem to manage their insurance coverage, and they want “the best deal they can get, because they pay every bill out of their pocket,” Gray says. If there weren’t advantages for insurers that have a larger market share, “we’d have many more health plans, with a smaller number of enrollees.”
He says health-care providers — including hospitals and physicians groups — also have been merging, proof that size matters. “The health industry has one big challenge, which is that in every sector, someone with an MBA comes along and says bigger is better when it comes to revenue and profit,” Gray says. “There’s always going to be a natural tension between providers and payors.”
Gray acknowledges that the Anthem-Cigna merger would mean fewer choices for some companies. “But the choice they do have will have a lot more leverage,” he says. “The bottom line for them is: How much is this going to cost me, and am I going to get access to a good network? They want somebody who is equipped to get a good deal.”
Gray offered this example: Say, you have a company with locations in six states. Today, it might be able to get a bid from Anthem in three states and a bid from Cigna or one of the few other major insurers in the remaining states. “If this merger happens, in all the places where Anthem is and where Cigna is, they can get one deal, which is more efficient and more effective. That’s the business case for the merger.”
Hospitals, physicians opposed
A major voice in the commonwealth against the Anthem-Cigna merger is the Virginia Hospital & Healthcare Association. Chris Bailey, the group’s executive vice president, made the VHHA argument at a May hearing before the SCC. Anthem already has “a significant concentration in Virginia’s self-insured and fully-insured commercial market,” he told the commission.
Plus, Bailey argues that mergers among hospitals and other health-care providers are different from combinations among insurance companies. Health system “integration” has helped improve medical care in a number of areas, Bailey says. “There are many opportunities for further improvements, but Virginia health-care delivery is moving in the right direction,” he said during his testimony.
Health-care providers already have the weaker hand in many parts of the state when it comes to negotiating fees or getting insurers to help them find new ways to deliver care, Bailey says. “There is no evidence in Virginia’s history, or in other markets, to indicate that allowing an already dominant insurer to gain greater market share and become even more protected against competitive pressures will result in” lower costs or more insurer support for new ways to deliver care, Bailey said in written comments to the SCC.
He also argued that there has been a steady drop in the annual rate of hospital price increases in recent years, while productivity has increased. “It is evident that a decade of provider integration has shown measurable improvement in quality and safety” while allowing the Anthem-Cigna merger “will make an already untenable situation that much more problematic for the insured, the public and health-care providers.”
The Medical Society of Virginia isn’t a fan of the merger, either. It polled 198 physicians in Virginia on both mergers and says that 79 percent “felt they had to contract with Anthem” and 55 percent felt that way with Cigna. Only 6 percent of doctors felt they could find enough new Medicare or Medicaid patients to replace the lost income from commercial insurance. Medicare and Medicaid payments are generally lower than what commercial insurers pay.
Scott Johnson, an attorney from the Richmond office of Hancock, Daniel, Johnson & Nagle, spoke on behalf of the medical society before the SCC, saying that the Anthem-Cigna merger would lessen competition over prices and discourage other insurers from entering Virginia.
Johnson says providers already face “a sort of take-it-or-leave-it type of contract” from Anthem and Cigna. “The concern that our folks have is that, if these companies merge, it gets even more arduous and puts more pressure on them.” He also raises the specter of some physicians facing exclusion. “We’re frankly concerned that, if it’s only one large company, for those physicians who advocate furiously for their patients, perhaps they wouldn’t be offered a contract” by Anthem.
Physicians with small practices in particular get squeezed by dominant insurers, Johnson says, and they get tired of the fight. “They have no choice; either retire or move out of state, or be consumed or hired by some type of health system in order to hang on.”
He cites his own law firm as an example of the problems some businesses face. In 2015, Johnson says, Anthem took in $300,000 more in premium payments than it paid out in claims to the firm’s employees. But when the coverage renewal came up last December, “they said, ‘We want to bump your premium another six figures.’”
Somewhere in the middle of this battle are consumers. Karen Cameron, director of the Virginia Consumer Voices for Healthcare, believes that claims that the mergers will save consumers money is a worn argument. “It won’t cut costs. Those systems are already very large systems, with advantages of economies of scale,” she says.
Cameron says large, self-insured firms might be convinced that the Anthem merger could help drive down costs, but smaller companies usually aren’t in that position. Smaller companies could face higher costs without competition, and, if it drives them to drop insurance coverage, then their employees will turn to the insurance exchanges of the Affordable Care Act. There, the federal government could wind up paying part of their costs.
Meanwhile, Anthem is making clear that it plans to fight. In full-page newspaper ads published days after federal regulators announced their lawsuits, Anthem CEO Joseph Swedish said the Justice Department’s analysis reflected its “fundamental misunderstanding of the dynamic, competitive and highly regulated health-care landscape.”
Swedish argued that the merger would save its self-insured customers $2 billion annually. “These savings are a direct pass through to consumers and will greatly improve the affordability of care,” he said.
Johnson, the Richmond attorney, says health-care providers feel the pressure from a lot of directions. “The practice of medicine right now is very fragile, and everybody is on edge for any type of change,” he says. “In the meantime, it’s somewhat status quo,” he says, though “everybody is waiting with bated breath for their renewal contracts.” But nobody expects a quick resolution of the merger fights. “Things just don’t happen that quickly.”