Bigger Isn't Always Better
By Amy Lynn Sorrel Texas Medicine December 2015

TMA Fights Aetna-Humana Merger

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Tex Med. 2015;111(12):22-31.

By Amy Lynn Sorrel
Associate Editor

As health plans attempt to supersize, the Texas Medical Association and organized medicine are ordering up a tall glass of scrutiny of the proposed Aetna-Humana and Anthem-Cigna mergers. Physicians say the mergers would expand insurers' waistlines and wallets, while leaving doctors and patients with the heartburn of fewer choices and higher costs.

The Aetna-Humana combo in particular would have a significant impact across Texas — and 13 other states — likely enhancing Aetna's market power to concerning levels per the federal government's own standards, according to a comprehensive American Medical Association analysis. (See "Market Dominance.")

Aetna and Humana stand among the top five commercial payers in Texas, along with Health Care Service Corporation (the parent company of Blue Cross and Blue Shield of Texas [(BCBSTX]), UnitedHealthcare, and Cigna. Humana and Aetna also round out the top three Medicare Advantage plans in Texas behind United. Anthem does not do significant business in Texas. 

Both deals come at a time when health insurance markets in Texas and across the country are highly concentrated into the hands of a few plans, and Congress examines the level of competition and its impact on the cost and quality of care in the wake of the Affordable Care Act. All told, whittling five of the nation's largest insurers down to three would diminish competition in as many as 154 metropolitan areas in 23 states, the AMA report shows. 

Aetna and Anthem cite robust competition in the market and defend the consolidations as leading to greater savings, better products, and new payment models. 

But physicians say they have been through this before and know that any supposed benefits come at doctors' and patients' expense in the form of take-it-or-leave-it payment contracts and take-it-or-leave-it insurance premiums. 

All of those effects take a toll on access to care, says Joseph S. Valenti, MD, chair of TMA's Council on Socioeconomics. The Denton obstetrician-gynecologist authored a letter on behalf of TMA to the U.S. Department of Justice (DOJ) opposing the Aetna-Humana deal. 

"Bigger isn't always better. Bigger means less competition. And less competition usually means higher prices. We've already seen in a lot of places it certainly doesn't mean lower prices. Meanwhile, the only things not going up are patients' coverage and physician reimbursements," Dr. Valenti said.

Already, health insurers are under fire for what Dr. Valenti describes as "ridiculously narrow networks" and skyrocketing premiums and deductibles, particularly in the ACA marketplaces. Increased consolidation also raises insurers' leverage over negotiated rates with physician practices, more than half of which in Texas and across the nation are small groups like Dr. Valenti's, according to TMA and AMA research. 

"The next step is for [insurers] to squeeze you not just out of their networks, but out of practice. So if they are not going to negotiate with us, I don't see how they can make plans affordable with much quality coverage," he said. 

TMA's letter also expresses concern that other dominant insurers don't benefit should the Aetna-Humana deal go through.  In the past, medicine successfully advocated that DOJ, which oversees antitrust issues, force merging insurers to sell off some of their combined business to a third party to reduce their market power. If federal regulators follow that prescription, TMA strongly opposes any partial acquisition by large players with significant market control. 

"We have to work toward an equitable solution that does not diminish competition and does not result in higher costs than they already are and lower reimbursements than they already are, which are very low. Just like evidence-based medicine, we ought to have evidence-based regulation," Dr. Valenti said. 

David A. Balto, a former federal antitrust regulator and Washington D.C.-based attorney who has worked with organized medicine, expects DOJ to take a hard look at the deals, which he calls "incredibly different" from past mergers that did not involve the massive consolidation of some of the nation's largest payers. "This has the potential to transform the industry," he said. Organized medicine's voice has had an impact before, Mr. Balto adds, making it "essential for physicians to air their concerns." 

Market Dominance

At press time in mid-October, both mergers still faced a lengthy federal approval process, and if cleared, would not complete until the end of 2016. Aetna seeks to acquire Humana Inc. in a $37 billion deal focused largely on buying up Humana's Medicare Advantage business, while Anthem Inc. looks to take over Cigna for $50 billion.

In September, AMA released its 2015 Competition in Health Insurance: A Comprehensive Study of U.S. Markets report — plus special analyses of the two proposed mergers — ahead of ongoing U.S. House and Senate committee hearings on health care competition. (See "Resources.") AMA testified against both mergers. The American Hospital Association also has been vocal in its opposition to the deals. 

Based on the same measures DOJ and the Federal Trade Commission (FTC) use to evaluate market concentration and preserve competition, AMA found the combined impact of the two proposed mergers would exceed federal antitrust guidelines and likely enhance the merged companies' influence in as many as 97 local health insurance markets in 17 states. The findings come from 2013 data captured from the commercial health insurance market, including enrollment in HMO, PPO, and point-of-service (POS) plans.

According to DOJ rules cited in the AMA report, "a merger enhances market power if it is likely to encourage one or more firms to raise price, reduce output, diminish innovation, or otherwise harm customers as a result of diminished competitive constraints or incentives."

Organized medicine has long cautioned against excessive consolidation, saying a lack of competition in health insurance markets is not in the best interest of patients or physicians. "If a health insurer merger is likely to erode competition, employers and patients may be charged higher than competitive premiums, and physicians may be pressured to accept unfair terms that undermine their role as patient advocates and their ability to provide high-quality care," said AMA President Steven J. Stack, MD. "Given these factors, AMA is urging federal and state regulators to carefully review the proposed mergers and use enforcement tools to preserve competition."

AMA findings show the Anthem-Cigna merger would enhance market power in 85 metropolitan areas within 13 states: California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, and Virginia. The Aetna-Humana merger would enhance market power in 15 metropolitan areas within seven states, including Texas. Both mergers raise concerns over diminished competition in additional markets. 

In Texas, the Aetna-Humana merger would increase the combined company's power in the state as a whole and in several commercial market segments, according to a TMA breakdown of AMA data. (See "Market Concentration: A Closer Look.")

Per federal standards, the consolidation would be considered likely to enhance market power: 

  • In the El Paso, San Antonio, and Corpus Christi metropolitan areas for the combined HMO, PPO, and POS markets;
  • In the Houston-Sugarland-Baytown, Austin-Round Rock, and San Antonio metropolitan areas for the HMO market; and 
  • In the El Paso, San Antonio, Houston-Sugarland-Baytown, Corpus Christi, Fort Worth-Arlington, Austin-Round Rock, Victoria, and Killeen-Temple-Fort Hood metropolitan areas for the PPO market.  

The merger also would raise significant competitive concerns in more than a dozen other areas of the state.

TMA's letter to DOJ cautions, too, against anticompetitive effects in Texas' Medicare Advantage market, pointing out the newly combined entity would control 36 percent of that business across the state.

Bigger, Not Better

AMA's report cites numerous studies linking past health plan mergers to higher insurance premiums. 

One analysis of the 1999 Aetna-Prudential merger tracked a 7-percent increase in insurance premiums across 139 separate geographic markets between 1998 and 2006. After the United-Sierra Health merger in 2008, the combined entity became the largest insurer in Nevada, and another study showed premiums later jumped nearly 14 percent. More recent research on the ACA health insurance exchanges found more competition — in the form of more participating insurers — would lower premiums. 

The highly concentrated landscape also "really affects the quality and availability of care because physicians are disempowered to be effective advocates for our patients," said Houston neurologist William Gilmer, MD. "It goes without saying it's dominated and completely monopolized by big health plans here." 

In Houston, Aetna and Humana are the top two insurers in the HMO market, with 58 percent and 15 percent market share, respectively, according to AMA data. Aetna is second in line in the PPO market behind BCBSTX.

When it comes to negotiating payment contracts, "the only choice I have is 'yes' or 'no.' Already a number of plans don't pay enough to cover the rent, and if the merger makes it any more difficult, I would have to drop out," said Dr. Gilmer, past Harris County Medical Society (HCMS) president. If payment isn't bad enough, "it's death by a thousand bureaucratic cuts. The more concentrated [insurers] get, the more rulemaking you have. And I can scream and complain and write letters all I want. But when there's not another option, health plans don't listen to me, and my patients are the ones who don't get the care they need."

TMA's annual Survey of Texas Physicians results continue to show a majority of physicians contract with at least one of the five major payers in Texas. Of those who attempt negotiation, about half report difficulties getting changes; roughly 60 percent of those who terminate their contracts do so because of imposed payment cuts. (See "At the Negotiating Table.")

Infectious disease specialist Gilberto A. Handal, MD, tells a similar story in El Paso, where Aetna currently has a 23-percent share of the combined commercial market, second behind BCBSTX, AMA data show. 

The El Paso County Medical Society president-elect says the merger raises additional concerns because "not only do Aetna and Humana have a big presence here, they both have different components. Humana has more Medicare business, and Aetna has more commercial business. Having them merge really unifies them into a single large company in both markets, and if you don't belong to them, you would not have any patients." 

United is the only other large competitor in the Medicare market, Dr. Handal adds. "So [insurers] can really take it or leave it and offer anything they want to any provider, physicians or hospitals. And we are going to be worse off because if we don't take it, we lose our patient relationships. It's really creating an unsustainable situation, and everyone here is distressed." 

Aetna: A New Strategy

Aetna officials say the health insurance market remains competitive, particularly with the shift to value-based care. Rather than creating any meaningful consolidation, Aetna Chief Population Health Officer Charles Kennedy says the Humana takeover will help further that transition and more evenly balance Aetna's portfolio of commercial and Medicare products.

He points to more insurers joining the Texas ACA marketplace in 2015 and other hospital players like Baylor Scott & White and Memorial Hermann entering the market with their own plans. (So far, BCBSTX dropped its PPO product in the Texas ACA exchange for 2016, and the merger would eliminate Humana.)

The Aetna-Humana merger also differs from past deals, which took place in a fee-for-service environment that contributed to today's high care costs, Mr. Kennedy says.

"We want to support the delivery system in offering better value for the health care dollar, and value is something you'll hear not just from us but from the federal government. The challenge is most of the health care system is still in fee-for-service, which makes it extremely difficult," he said. "This transaction allows us to take value-based strategies Aetna is using in a commercial setting, combine those with value-based strategies Humana is using in the Medicare environment, and put them together and help providers make the transition" across the board. 

Aetna acknowledges physicians' payment concerns. But Mr. Kennedy says those concerns also "are rooted from experiences providers had in a fee-for-service world, where what the plan does is sit across the table and have a negotiation over rates," versus collaborating to reduce costs and improve quality.

He says the consolidation would collectively eliminate $1.25 billion in administrative costs and continue infrastructure investments — such as preventive care programs, care coordination, and data analytics — that support physicians in value-based care models and offer better revenue opportunities. Meanwhile, 54 percent of Humana's Medicare patients are in accountable care-type organizations already showing cost reductions. 

"When we think about value-based care programs and the success we are seeing, we think by combining together, we can provide better patient satisfaction, cut costs, and offer physicians a share of the savings," Mr. Kennedy said. 

In response to past studies linking plan mergers to higher insurance premiums, he says those, too, were done "in a fee-for-service world where doctors and patients had negotiations over rates, and those rate reductions may or may not have been passed to the consumer. And remember, this [merger] is not just about cutting costs randomly. It's about increasing value. And that means eliminating waste and harm from the system and using those savings to drive better reimbursement for physicians and better prices for consumers."

As for those promises, "I'll believe it when I see it," Dr. Gilmer said. His practice belongs to a small commercial accountable care organization in which 50 percent of any savings generated goes back to the health plan; 25 percent goes to the sponsoring hospital; and the remaining 25 percent is split up among participating physicians. "The only sharing of savings I've seen is sharing with [plans'] dividend holders." 

Nor is the barrier low for new companies to enter the market and compete on the same scale, Dr. Gilmer says. When HCMS and other local county medical societies tried to enter the insurance market with a physician-owned and -managed insurance product 15 years ago, "it was starved to death when all the other insurance companies kept cutting their costs and underbidding us because they were bigger," he said. "And that was 15 years ago when there was a lot more competition. Now, how in the world could anyone compete?"

Antitrust Scrutiny

Mr. Balto, a former policy director for the FTC's Bureau of Competition and former DOJ antitrust lawyer, says the past will be a critical guide in DOJ's review, as will the current environment characterized by low physician payments, rising premiums, and shrinking health plan networks. 

Today's mega-mergers occur against a backdrop of evidence documenting plans' anticompetitive behavior, "so we don't have to guess about what's going to happen because the story from past mergers is pretty clear. And these economic studies and government enforcement actions demonstrate quite clearly they have led to higher premiums with no improvements on service," he said. 

Physicians' concerns also weighed heavily in past reviews. Federal antitrust regulators, for example, challenged two health plan mergers in court based in part on the combined companies' power to reduce physician payments and ultimately care quality: the 1999 Aetna-Prudential merger and United's 2005 acquisition of PacifiCare. 

Mr. Balto says plans also can exercise significant buying power because doctors have only one product: patient care. "Doctors have committed their lives to providing health care to people they have long-term relationships with. They are not about to go be software engineers. On the other hand, it's easy for insurance companies" to find alternatives. 

Plans also "have to show directly [any efficiencies] will ultimately lead to lower premiums, and these don't even begin to scratch the surface. And you have to show the merger is the only way to do it," Mr. Balto said. Insurers may tout certain gains in combining their expertise, but "the way you are supposed to do it is by rolling up your sleeves, not taking out your competitor."

Although past mergers ultimately went through, organized medicine won concessions to help check insurers' market power. In the Aetna-Prudential merger, TMA worked with county societies and other state medical societies to force Aetna to divest some of its business in Dallas and Houston. In the United-PacifiCare merger, PacifiCare had to divest business in Arizona and Colorado. 

In today's concentrated landscape, however, "the problem is, carve-outs like that are like carving out an elephant the size of Fort Worth," Mr. Balto said. 

He cited precedent for TMA's request that DOJ require any prescribed sell-offs to go to smaller players. He also reiterated DOJ's track record for turning to the courts to block large-scale mergers altogether — which he considers a likely path in this case — and organized medicine's role in the process. 

"Doctors are there to make sure patients receive the best care and that the right services are covered. So it is really vital for doctors to express their concerns because they certainly do factor in," Mr. Balto said. 

Amy Lynn Sorrel can be reached by phone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email.



  • The AMA 2015 Competition in Health Insurance: A Comprehensive Study of U.S. Markets is free to AMA members. The study is also available to nonmembers. To order a copy, visit the online AMA Store, or call (800) 621-8335 and mention item number OP427113. 
  • AMA members also can access free special online analyses of the Anthem-Cigna and Aetna-Humana mergers.   

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Last Updated On

May 20, 2016