Why did the Aetna/Humana and Cigna/Anthem Merger Fail?
Economists know competition is essential in a free market society to keep quality of services high and prices low.
Last year, former Attorney General Loretta Lynch sued 4 major healthcare companies for trying to cut competition in half, which in several states, would leave a monopoly over the healthcare insurance system. Last week, the Department of Justice ruled in her favor. Aetna will pay Humana a $1 billion breakup fee and Anthem’s fee to Cigna has a price tag of $1.85 billion, but Cigna has filed a suit against Anthem for $13 billion for violating the merger agreement. The two companies clashed early on over who would lead the combined conglomerate, but it appears to now be a moot point.
In the case of the Aetna/Humana merger, the business deal would have created the second-largest healthcare insurer in the country. Taking into account the Cigna/Anthem deal, we would be left with only 3 giant players in the insurance system, with UnitedHealth being the 3rd. How does this affect a free market?
Mergers are great for companies and their shareholders — but, as a Stanford study published in the Journal of American Medical Association found, mergers are questionable for patients, providers and healthcare employers.
Competition drives prices down and keeps companies in check. For patients, a single option in one state gives the insurer total control over patient care. Premiums and copays increase and healthcare “squeezes out waste” because it behooves them to do so. In some cases, “waste” may even be a synonym for “care.” Lynch argued for nixing the Aetna/Humana deal and the Cigna/Anthem deal to give patients choices over their care — if Aetna is the only choice, they hand you a plan. Regardless of whether or not it is better for the patient.
For hospitals and other care providers, negotiating contracts becomes impossible because there is only one option. The price for prescription drugs is set. The price on a life-saving healthcare procedure is fixed. And this leaves providers struggling to keep their doors open because they cannot cover the cost of higher prices.
And for healthcare employers, consolidating jobs within a single company eliminates the job market. Recruiting from several companies gives employers options between candidates.
As the future of the Affordable Care Act hangs in limbo and seems to be delayed at every turn, it is difficult to forecast how healthcare will be funded. But, for now, it seems large monopoly payers are not an option.
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