You may have heard the news over the weekend of a mega-merger between two of the country's biggest health insurance companies, Aetna and Humana. The $37 billion deal is just one of a series that are expected to reshape the health insurance landscape, after the Supreme Court decision last month made it clear that health care reform was here to stay.
The question most people care about outside Wall Street -- what effect these mergers will have on what we pay for health care is a source of some disagareement among specialists. One of the most surprising -- and weird -- things about the insurer merger mania is that ultimately, some analysts think it might have benefits for consumers. But others say there is some evidence that a marketplace with fewer insurers will be bad for consumers.
Either way, we won't see the effects trickle down to premiums for about a year because the health plans starting in the year 2016 are already in place.
Here's the glass half-empty:
It's almost never a good thing for consumers when there are fewer choices about where to buy a product. A study published in the American Journal of Health Economics found that in the first year of the health insurance marketplaces, more insurers meant lower premiums. It found that if all the insurers active in a state had participated in the first year of the health insurance marketplaces -- the exchanges set up by the Affordable Care Act where people can buy plans -- the premiums for a key plan would have been about 11 percent less expensive.
A 2012 study of the after-effects of a large national merger between Aetna and Prudential in 1999 found that premiums rose by seven percentage points.
"The evidence there shows that premiums rise when insurers consolidate. I’d love to see other evidence," said Leemore Dafny, a professor of strategy at Kellogg School of Management at Northwestern University. "I would be sounding a questioning note and say the past hasn’t demonstrated beneficial effects for consumers; tell me why the future is any different. I wouldn’t say it can’t be, but I would be asking tough questions and I’m sure the regulators will."
The Department of Justice has signaled that it will be closely watching the mergers, according to the Wall Street Journal.
Here's the glass half-full:
Several analysts said the seismic shift underway in health insurance -- from the "big five" health insurers to the "big three" -- could, paradoxically, have an upside.
"Always, consumers should be wary when sellers gain market power," Katherine Hempstead, director of the Robert Wood Johnson Foundation's work on health insurance coverage said. But, she added, this isn't like the airline industry.
"There are a couple reasons not to panic. One is that the business is really regulated. ... Their rates are scrutinized and they can’t just charge whatever they what," Hempstead said.
The Affordable Care Act fundamentally changed the tactics for insurance companies trying to make money. The law limits how much insurers can profit from the individual plans they offer, which means that to make money they have begun to focus on cutting administrative costs -- something they can do by serving more people. And as the companies get bigger and have more members, they will have more clout when negotiating prices with hospitals and providers.
"My personal view has been the regulations the federal overhaul has set up, as far as the rate-setting process and the profitability caps, will make sure there are consumer protections," said Ana Gupte, a managing director and senior research analyst at Leerink Partners. "If anything, I think it allows the larger entities to provide more affordable products."
Hempstead added that although these big companies are national carriers, health insurance remains a local business. That means within a given geographical area, there will be a different mix of insurers participating, and the competitive pressures in that particular marketplace will help determine prices.
But even if the bigger companies are able to become more efficient, will they really pass those savings on to consumers?
Vishnu Lekraj, a senior analyst at Morningstar, said that the consolidation shouldn't result in big premium increases.
"Theoretically, what it would do is curb the growth in premiums over time, because the companies are going to become more efficient and will be able to negotiate better reimbursement terms with hospitals and doctors" Lekraj said.
California's top insurance regulator told the Los Angeles Times he was doubtful.
"There is no requirement the insurers pass on the savings, and historically I don't think it has worked out that way," Dave Jones, the state's elected insurance commissioner said.
Figuring out who is right may be a waiting game, but in the mean time, many people are seeing their health care premiums go up right now. The rates that insurance companies have sought for 2016 are up considerably in some markets -- by as much as 20 to 40 percent. A Kaiser Family Foundation study of 11 major cities found that a type of health plan considered a benchmark is up modestly, by 4.4 percent, for 2016.