bigger is not better

8/20/2019 Bigger Is Not Better

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1 Center for American Progress | Bigger Is Not Better

Bigger Is Not Better

Proposed Insurer Mergers Are Likelyto Harm Consumers and Taxpayers

By Topher Spiro, Maura Calsyn, and Meghan O’Toole January 21, 2016

In July 2015, Aena Inc. announced plans o buy Humana Inc. in a $37 billion deal ha

would merge wo o he five larges healh insurance companies in he Unied Saes.1

Te same monh, wo more o hese five major U.S. insurersAnhem Inc. and Cigna

Corp.announced plans or a merger.2 Te U.S. Deparmen o Jusice, or DOJ, is

currenly reviewing hese mergers o deermine wheher hey violae anirus laws by reducing marke compeiion; collecively, hese our companies cover almos 90

million people.3 Federal law prohibis mergers when he effec “may be subsanially o

lessen compeiion, or o end o creae a monopoly.”4

DOJ’s evaluaion will assess he mergers in a variey o ways. Firs, DOJ will look a local

markes in which he insurers currenly compee and assess wheher he merging firms

are he bes subsiues or each oher or primary compeiors.5 For example, i will look

a he insurers’ compeing producs in specific areas. Second, DOJ will consider he

overall compeiive impac o he mergers.

Tis issue brie ocuses on he poenial impac o he proposed Aena-Humana

merger on he Medicare Advanage marke. Our analysis finds ha he merger would

resul in greaer concenraion in already concenraed Medicare Advanage markes.

While he combined company would serve 8 percen o all Medicare beneficiaries

including hose served by radiional Medicarei would serve more han one-quar-

er o Medicare Advanage beneficiaries.6 For anirus purposes, Medicare Advanage

should be considered a disinc marke separae rom radiional Medicare because,

or a variey o reasons, seniors may no swich easily rom Medicare Advanage o

radiional Medicare.7

No only would he merger reduce compeiion in areas where he insurers currenly

overlap, bu i also would oreclose uure compeiion in oher areas and markes in

which he insurers do no currenly compee. For ha reason, even i ederal regulaors

require Aena and Humana o dives pars o heir Medicare Advanage business in areas

where hey overlap, he merger would sill reduce compeiion.


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As a resul, he Aena-Humana merger likely would increase premiums or seniors.

Te Cener or American Progress’ analysis finds ha in areas where he wo insurers

overlap, he presence o he second insurer exers downward pressure on premiums. Te

compeiion beween he wo insurers lowers Aena’s annual premiums by up o $302

and Humana’s annual premiums by $43. In he absence o his compeiion, premiums

would be higher by hese amouns. Under he merger, premiums could increase by even

more as a resul o he greaer marke power o he new company.

Regardless o he impac on premiums, he merger cerainly would reduce he number

o choices in insurance producs. Wha’s more, he merger likely would increase coss o

he Medicare program and increase he ederal budge defici because insurer bids likely

would rise and he governmen would reain less in savings.

Despie hese poenial adverse effecs, proponens o he merger make several argu-

mens in is avor, including ha he combined company would enhance reorm o he

healh care paymen and delivery sysem and improve he qualiy o care. However,

hese argumens do no sand up under close scruiny. A bes, he effecs o he merger would be highly uncerain or consumers and he broader healh care sysem. A a ime

o grea change in he healh care sysem, prudence would dicae exreme cauion in

allowing he merger o proceedespecially given ha i could no be undone and is

poenially serious adverse effecs would be irreversible.

The ef fects of health insurer mergers

Teoreically, insurer mergers could have wo very differen resuls. Firs, hey could

raise premiumsi he merger reduces compeiion, allowing healh insurers o sehigher prices. Second, i a merger srenghens insurers’ bargaining power wih provid-

ers, i could in ac lower prices.8 Similarly, a merger also has he poenial o resul in

efficiency gains, including rom economies o scale, and savings ha insurers could pass

along o consumers in he orm o lower premiums.

Researchers have no sudied he impac o mergers specifically on Medicare Advanage

premiums, bu he available research on insurance consolidaionas summarized

belowis applicable o he privae Medicare Advanage marke and shows ha insurer

consolidaion generally leads o higher premiums.9 And compeiion in healh care

markes leads o lower premiums. Healh insurance markes also already have significan

barriers o enry ha can reduce compeiion.


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Consolidation increases premiums

Research shows ha consolidaion among healh insurers can decrease compeiion, in

urn increasing coss or consumers. Firs, when compeiors merge o orm a new, larger

business, ha enlarged company may raise prices on is own i i no longer aces marke

compeiion.10 Second, a merger can increase he likelihood ha remaining businesses

can ac in a coordinaed way o undermine compeiion.11

Te primary example o research on healh insurance consolidaion assessed he effecs

on he privae insurance marke o a 1999 merger beween Aena and Prudenial

Healhcare.12 Because hese wo naional insurers were presen in mos local insurance

markes, heir merger had a broad impac. Te analysis ound ha he merger had sais-

ically significan effecs in raising premium prices. Overall, researchers ound ha he

merger, due o he increase in concenraion in he local markes, resuled in premiums

ha were 7 percen higher by 2007 han hey would have been i local marke concenra-

ion had remained he same as prior o he merger.13

Anoher sudy looked a a merger in 2008 beween Sierra Healh Services and

UniedHealh Group and he effec on premiums in he small-group insurance mar-

ke, or employers wih ewer han 50 employees.14 Comparing wo markes in Nevada

o conrol markes in oher saes, he sudy ound ha small-group premiums in he

Nevada markes increased by 13.7 percen in he year afer he merger.

Competition lowers prices

Research also demonsraes ha compeiion in healh insurance markes reducespremium coss. Te U.S. Deparmen o Healh and Human Services, or HHS, has

quanified he effec ha compeiion in he Affordable Care Ac’s markeplaces had on

premiums in 2014.15 Specifically, he premium o he second-lowes-cos silver plan

he plan agains which he premium ax credis available hrough he markeplaces are

calculaeddecreased 4 percen or each addiional insurer paricipaing in a raing

area. HHS also ound ha premium growh rom 2014 o 2015 or he second-lowes-

cos silver plan decreased by 2.8 percenage poins or each ne gain o one issuer in a

couny.16

wo recen sudies corroborae he findings ha compeiion is associaed wih lower

premiums. Firs, researchers ound ha in he ederally aciliaed markeplaces, he

addiion o one insurer in a couny was associaed wih a 1.2 percen lower premium or

he average silver plan and a 3.5 percen lower premium or he second-lowes-cos silver

plan rom 2014 o 2015.17 A second group o researchers ound ha beween 2014 and

2015, premiums or all plans in a raing area dropped 1.4 percen, and he wo lowes-

cos silver plans and he lowes-cos bronze plan dropped 2.2 percen or each addiional

issuer, holding all oher acors consan.18


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Anoher sudy ound similar effecs by examining he effec on premiums when insurers

did no paricipae in he markeplaces.19 In 2014, only 54 percen o he hree larges

insurers in each sae paricipaed in he sae’s markeplace, and UniedHealhcare

he naion’s bigges insurerdid no paricipae in any.20 Te researchers ound ha i

UniedHealhcare had paricipaed, he premium or he second-lowes-cos silver plan

would have been lower, on average, by 5.4 percen. Furhermore, i all insurers who were

acive in each sae’s individual marke had offered markeplace plans, premiums wouldhave been 11.1 percen lower.21

Addiional research on he Affordable Care Ac’s markeplaces provides more evi-

dence ha larger insurers have he power, and use i, o raise prices.22 A recen sudy

looked a he changes in healh insurance premiums charged by individual insurers in

saes wih ederally aciliaed and sae-parnership markeplaces. Te sudy’s resuls

show ha beween 2014 and 2015, he larges insurers in each sae raised premiums

75 percen more han he oher insurers in he sae, even hough he large insurers’

coss were no growing aser.23

A recen paper also invesigaed he impac o insurer compeiion on premiums in he

large-group commercial healh insurance marke in Caliornia. Te researchers simulaed

he effec on premiums o removing an insurer rom he marke. Tey ound ha removing

an insurer led o increases in premiums, and also possibly hospial prices, on average.24

Barriers to entry

In addiion, here are already subsanial barriers o enry in privae healh insurance

markes ha discourage insurers rom enering a marke, hereore reducing compei-ion. Tese barriers include building provider neworks, negoiaing compeiive raes

wih providers, esablishing a repuaion wih cusomers in he local marke, and crea-

ing economies o scale in areas such as inormaion echnology.25 Tese barriers are only

amplified by consolidaion, which creaes large companies wih greaer economies o

scale and provider neworks. As Leemore Dany, an exper in insurance consolidaion,

esified recenly beore he Senae Judiciary Commitee:

In ligh of he impedimens o de novo enry, consolidaion even in non-overlapping

markes reduces he number of poenial enrans who migh atemp o overcome

price-increasing (or qualiy-reducing) consolidaion in markes where hey do no

currenly operae.26


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The Medicare Advantage program

Medicare Advanage is a ype o Medicare coverage ha allows seniors o op ou o

radiional Medicare and enroll in a privae insurance plan. Te Medicare program pays

each privae plan a monhly amoun per enrollee o provide Medicare benefis.

In 2015, 16.8 million Americans were enrolled in Medicare Advanage plans, or 31percen o all Medicare enrollees.27 Tese numbers have increased rom 11.1 million

enrolled24 percen o he Medicare populaionin 2010.28 Medicare Advanage is an

atracive insurance marke or insurers because o he counry’s aging populaion and

he increasing percenage o seniors choosing hese plans.

Medicare Advanage enrollees sill pay he regular Medicare Par B

premium like all oher Medicare enrollees and also may have o pay

an addiional monhly premium charged by he Medicare Advanage

plan.31 However, Medicare Advanage plans generally have lower cos

sharing han radiional Medicare and provide coverage or pre-scripion drugs. By conras, Medicare beneficiaries enrolled in he

radiional Medicare program ypically enroll in a separae Medicare

prescripion drug plan, a so-called Medigap supplemenal healh care

plan ha covers ou-o-pocke coss, supplemenal reiree coverage

rom a ormer employer or union, or some combinaion o plans, in

order o gain comparable coverage.32

In 2015, he range o Medicare Par B premiums was $104.90 o

$335.70 per monh, wih mos beneficiaries paying $104.90.33 Te

average added Medicare Advanage premium in 2015 was $38 permonh.34 Mos Medicare Advanage beneficiaries have he choice

o a plan wih zero addiional premium, bu he availabiliy o

his opion has declined rom 94 percen in 2009 o 78 percen in

2015.35 Medicare Advanage enrollees’ ou-o-pocke coss also are increasing. For

example, in 2015, he average plan limi on ou-o-pocke coss or covered services

was $5,037, which is $240 more han in 2014.

Competition in Medicare Advantage markets

Nearly all Medicare Advanage markes across he Unied Saes already lack compeiion.

Te Herfindahl-Hirschman Index, or HHI, is a sandard measure o marke concen-

raion and compeiion, and i is used o evaluae poenial anirus implicaions o

marke acquisiions and mergers.36 Nonconcenraed markes have an HHI below 1,500

poins, moderaely concenraed markes have an HHI beween 1,500 and 2,500 poins,

Medicare Advantagebidding process

Medicare pays Medicare Advantage plans under a bi

ding process. Each Medicare Advantage plan submita bid to Medicare in the amount of the average cost t

the plan of providing traditional Medicare benefits to

a typical beneficiary in the plan’s area.29 The plan’s bi

is then compared with a benchmark. I f the plan’s bid

lower than the benchmark, the government provides

a rebate amount to the plan that is a portion of the d

ference between the bid and the benchmark.30 Plans

must spend their rebate on extra benefits, reduced

cost sharing, or lower premiums. If the plan’s bid is

greater than the benchmark, beneficiaries pay thatdifference as an added premium.


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and he HHI in highly concenraed markes is more han 2,500 poins.37 A recen

Commonwealh Fund analysis ound ha 97 percen o Medicare Advanage plan mar-

kes in U.S. counies are highly concenraed.38 Even among he 100 counies wih he

mos Medicare beneficiaries, 81 do no have compeiive markes.

Similar o he research on compeiion cied above, compeiion in he Medicare

Advanage marke has been ound o decrease premiums.39 Te firs empirical sudyo compeiive bidding in Medicare Advanage ound ha each addiional insurer in

a marke lowered bids by $1.28 and increased rebaes by $0.83, meaning ha when

compeiion exiss, plans have an incenive o bid lower and offer higher rebaes in order

o atrac enrollees. Furhermore, his analysis also ound ha when Medicare raised

is benchmarkseven when a plan’s coss remained he samehe plan submited

a higher bid. In oher words, he plans pockeed par o Medicare’s higher paymens

insead o passing hem along as rebaes o beneficiaries. I Medicare Advanage were

ruly a compeiive marke, addiional paymens o plans would no change bids because

bids should only be as high as he plan’s cos o insuring beneficiaries.

Effect of the Aetna-Humana merger on the Medicare Advantage market

Te Aena-Humana merger would affec a subsanial percenage o Medicare Advanage

enrollees. Currenly, Humana has 19 percen o he Medicare Advanage marke, wih

Aena holding 7 percen. A combined company would surpass UniedHealhcare, which is

currenly he larges Medicare Advanage insurer, wih 20 percen o he marke share.40

Te proposed merger would urher increase concenraion and decrease compeiion

in Medicare Advanage markes, which in urn would increase premiums and Medicareprogram spending.

Increased market concentration

Te Kaiser Family Foundaion finds ha he Aena-Humana merger would include a

leas hal o all Medicare Advanage enrollees in 10 saes and a leas wo-hirds o all

enrollees in five saes.41 Te American Hospial Associaion also has ound ha he

Aena-Humana merger would increase marke concenraion; he HHI would increase

by a leas 100 poins in 1,083 markes and more han 200 poins in 924 markes, and

he posmerger HHI in hese markes would be more han 2,500 poinssigniying

highly concenraed markes.42 Te American Hospial Associaion also repors ha he

merger would affec more han 2.7 million Medicare Advanage enrollees.


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Te proposed Aena-Humana merger would increase concenraion in Medicare

Advanage markes where boh insurers currenly offer plans. A Cener or American

Progress analysis o daa rom he Ceners or Medicare & Medicaid Services finds ha

in 2015, Aena and Humana boh offer Medicare Advanage plans in 562 counies in

28 saes. Tis is almos 20 percen o all o he counies and couny equivalens in he

Unied Saes.43 Te range o he number o counies wih boh issuers varies signifi-

canly by saerom jus 1 couny in Arizona and Nevada o 59 in Pennsylvania and 67in Missouri. (see able B1 in Appendix B) Tis overlap also has dramaically increased

in recen yearsrom 82 counies in 2012 o 562 counies in 2015.

Imporanly, his significan increase in overlap in recen years suggess ha compei-

ion beween he wo insurers is increasing and ha hey would coninue o ener each

oher’s markes i hey did no merge; a merger would oreclose his poenial uure

compeiion. In he 562 counies where he insurers currenly do overlap, no only

would hey no longer compee wih each oher, bu oher insurers also may be dissuaded

rom enering hese markes because he comparaive advanage o he large combined

insurer would be oo grea.

Higher premiums

Tis increase in concenraion, and corresponding decrease in compeiion, rom he

proposed merger would affec Medicare Advanage premium prices. CAP’s analysis o

he premiums offered by Aena and Humana in overlapping markes rom 2008 o 2015

quanifies how he curren compeiion beween Aena and Humana pus downward

pressure on premiums. Using regression analysis and conrolling or year, he ype o

plan, and sae, CAP finds ha when Humana offers a Medicare Advanage plan in hesame couny as Aena, Aena’s average premium is lower, and vice versa.* Tese effecs

are large and highly saisically significan. (See Appendix A or he mehodology and

Appendix B or he regression ables)

Specifically, in counies where Humana offers a plan o compee wih Aena, Aena’s aver-

age annual premiums are $302 lower han in counies where Humana does no offer a plan.

A more conservaive esimae ha conrols or differen effecs by sae finds ha Aena’s

average annual premiums are $155 lower in counies where i compees wih Humana.**

Tis downward pressure rom compeiion beween he wo insurers also affecs Humana’s

premiums. Where he wo insurers are compeing, Humana’s average annual premium is

$43 lower, conrolling or sae effecs, han where hey are no compeing.

Tese resuls demonsrae how much premiums could increase i he merger is

approved. Furhermore, a combined company acually could raise premiums even

higher han his analysis suggess because o he company’s greaer marke power.

TABLE 1

Overlap between Aetna and

Humana in the Medicare

Advantage market

Year

Number of counties

with both Humana

and Aetna Medicare

Advantage plans

2012 82

2013 371

2014 479

2015 562

Sources: Authors’ analysis is based on Centers forMedicare & Medicaid Services, “2008–2015 MALandscape Source Files,” available at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/ PrescriptionDrugCovGenin/ (last accessed December2015); Centers for Medicare & Medicaid Services,“2008–2015 Monthly Enrollment by Contract/Plan/ State/County,” available at https://www.cms.gov/ Research-Statistics-Data-and-Systems/Statistics-

Trends-and-Reports/MCRAdvPartDEnrolData/MonthlyEnrollment-by-Contract-Plan-State-County.html (last

accessed December 2015).

* We also control for the presence of UnitedHealthcare in these markets because it is currently the largest Medicare Advantage insurer.

** We use fixed effects estimation because we assume that premiums may be correlated with the state in which plans are offered. Fixed effects estima-

tion controls for variation within groups—the state in this case. We also use clustered standard errors by state.

Effect of competitio

In counties where Aetna and

Humana compete:*

• Aetna’s Medicare Advantage

annual premiums are

$155 lower• Humana’s Medicare Advantag

annual premiums are

$43 lower

* Compared with premiums in counties wherethey do not compete and controlling for differeneffects by state


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Higher Medicare program spending

Te primary concern regarding he proposed merger is he impac on consumers, bu

here also would be adverse effecs on he Medicare program and axpayers, as well as

he ederal defici. Medicare program spending will increase i he new, significanly

larger combined insurer increases is bid amouns, which is likely, and i ewer bids are

below he benchmark raemeaning ha he ederal governmen reains ewer rebaes.Firs, even i he new plan’s bid is below he benchmark amoun, i is sill likely o be

higher han he premerger bid amouns. Second, when here are ewer plans, i is a rea-

sonable assumpion ha ewer plans will bid below he benchmark rae. In his scenario,

Medicare’s coss would increase rom he curren paymen amoun, which is below he

benchmark amoun, o he benchmark amoun.

Higher Medicare program spending

An example can help illustrate how a merger that results in higher premium prices couldincrease government spending on Medicare. In this example, we assume that the bids for the

combined company postmerger will be the higher of the bids of the two individual insurers

premerger. These numbers are purely illustrative.

Benchmark:* $752.50

Premerger:

Aetna bid: $740

Humana bid: $750

Government spending: Government spending equals the bid amount plus a rebate to theinsurer that is between 50 percent and 70 percent of the difference between the bid and the

benchmark, depending on the plan quality ratings.44 Therefore, the government will pay a

monthly rate per beneficiary of $746.25 to Aetna and $751.25 to Humana—for an average

of $748.75 per beneficiary.**

Postmerger:

Bid by combined Aetna-Humana insurer: $750

Government spending: $751.25 to combined insurer

Effect of the merger:

Medicare’s monthly payment increased from an average of $748.75 per beneficiary premerger

to $751.25 per beneficiary postmerger. Even though the combined company is still bidding

below the benchmark rate, the government spends more money per beneficiary.

* $752.50 is the average local monthly benchmark in 2015, weighted by enrollment in different types of plans by county. See Kaiser FamilyFoundation, “Medicare Advantage: Local Benchmarks (weighted),” available at http://kff.org/medicare/state-indicator/local-benchmarks-weighted/(last accessed December 2015).

** $746.25 is calculated as $740 + 0.5*(752.50-740). $751.25 is calculated as $750 + 0.5*(752.50-750), where 0.5 is the portion of the differencebetween the bid and the benchmark that the insurer keeps as a rebate in the above example.

http://kff.org/medicare/state-indicator/local-benchmarks-weighted/http://kff.org/medicare/state-indicator/local-benchmarks-weighted/


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Effect on the individual health insurance market

Tis issue brie ocuses on Medicare Advanage and how he proposed merger would

reduce compeiion and increase premiums in ha marke. However, he merger also

would have significan effecs on he individual healh insurance marke, where here is

also subsanial overlap beween Aena and Humana. In eigh saes, Aena and Humana

boh offer markeplace plans in he same raing areas.45 Aena is already he larges issueron he markeplaces, and wih he acquisiion o Humana, i would increase is enrollmen

in he markeplaces o almos 17 percen o all hose who have purchased markeplace

plans.46 Wih he announcemen by UniedHealh Group ha i is considering an exi rom

he markeplaces, his share and he effec on compeiion could be even greaer.

Even hough he raing areas in which Aena and Humana currenly compee would

have oher compeiors should he proposed merger go hrough, premiums on he mar-

keplaces sill are likely o increase. Recen research has ound ha he average premium

o he second-lowes-cos silver plan in 2015 was 3.5 percen lower or every addiional

insurer paricipaing in a raing area.47

Tis effec suggess ha in 2015, i a merger hadremoved one insurer rom he eigh saes where Aena and Humana currenly compee,

premiums or he second-lowes-cos silver plan could have been an average o $328

higher or a amily o our.

TABLE 2

The proposed merger’s impact on premiums

in the health insurance marketplaces

2015 health

insurance

marketplace

enrollment

Average premium

of second-lowest-cost

silver plan for family

of four, 2015

Average premium

of second-lowest-

cost silver plan with

one less insurer

Difference

Arizona 154,121 $6,876 $7,117 $241

Florida 1,314,890 $10,020 $10,371 $351

Georgia 417,890 $9,564 $9,899 $335

Illinois 297,406 $8,304 $8,595 $291

Missouri 212,256 $10,068 $10,420 $352

Ohio 188,223 $9,552 $9,886 $334

Texas 943,218 $9,120 $9,439 $319

Utah 126,784 $8,172 $8,458 $286

Weighted

average $9,378 $9,706 $328

Sources: Office of the Assistant Secretary for Planning and Evaluation, Health Plan Choice and Premiums in the 2015 Health Insurance Marketplace(U.S. Department of Health and Human Services, 2015), available at https://aspe.hhs.gov/sites/default/files/pdf/77176/healthPremium2015.pdf; KaiserFamily Foundation, “Marketplace Enrollment as a Share of the Potential Marketplace Population,” available at http://kff.org/health-reform/state-indicator/ marketplace-enrollment-as-a-share-of-the-potential-marketplace-population-2015/ (last accessed December 2015); Paul D. Jacobs, Jessica S. Banthin,and Samuel Trachtman, “Insurer Competition in Federally Run Marketplaces Is Associated With Lower Premiums,” Health Affairs 34 (12) (2015): 2027–2035.


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Other considerations

Proponens o he merger poin o poenial upsides o a combined company o jusiy

he merger. However, hese argumens do no provide sufficien assurances ha hey

will benefi consumers.

Would a merger enhance payment reform and value?

Aena and Humana have argued ha he greaer marke share and resources o he

combined company would increase heir ocus on paymen reorm.48 Many Medicare

Advanage plans largely operae in he ee-or-service sysem, where healh care provid-

ers are paid separaely or each iem and service urnished o a paien, which encour-

ages a higher volume o services and less coordinaion o care. Moving more Medicare

Advanage plans o alernaive paymen models, under which healh care providers are

accounable or he qualiy and cos o care or each paien, would help consrain healh

care coss and improve qualiy.

I is possible ha paymen reorm could be more effecive when done by a bigger insurer

wih greaer marke share because providers would ace sronger incenives o change

he way hey deliver care. However, radiional Medicare, which sill has 69 percen mar-

ke share, is already esing and implemening paymen reorms.49 I radiional Medicare

ollows hrough on paymen reormand i all Medicare Advanage insurers also adop

such paymen reormshe combined signal and incenives or providers will be ar

greaer han i a single large insurer adops paymen reorms.

Moreover, Aena and Humana are already wo o he five larges insurers wih vasresources, so i is hard o see why combining he companies is necessary o adop

paymen reorms. Tere is also no evidence ha larger insurers are more likely o

implemen innovaive paymen models, nor any assurance ha he combined Aena-

Humana company would do so.50 In addiion, here is an argumen ha more com-

peiion could lead o more innovaive ways o lower coss and improve care, and he

merger would reduce his compeiion.

Aena also poins o is plans o build an “Opum-like uni” wihin he combined com-

pany as a posiive resul o he merger.51 Opum is a par o UniedHealh Group ha

provides healh services such as daa analyics, clinical consuling, and drug manage-

men.* Opum serves cliens across he healh care sysem, including he relaed com-

pany o UniedHealhcare, and i has been very profiable or UniedHealh Group.52

Humana conrols he ourh-larges pharmacy benefi manager in he counry, which

would enable Aena o creae a uni similar o Opum.53

* UnitedHealthcare is the other part of UnitedHealth Group, which provides health care coverage and benefits. See UnitedHealth Group, “AboutUnitedHealth Group,” available at http://www.unitedhealthgroup.com/About/Default.aspx (last accessed December 2015).

http://www.unitedhealthgroup.com/About/Default.aspxhttp://www.unitedhealthgroup.com/About/Default.aspx


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As noed above, Aena and Humana are already massive insurers wih significan

resources, so i is no clear why a merger is necessary or heir effors o build an Opum-

like healh services division. Moreover, o dae, Opum has no improved he qualiy o

UniedHealhcare’s Medicare Advanage plans. Medicare Advanage plans are raed on

qualiy and perormance measures. In 2015, he average sar raing or all plans weighed

by enrollmen is 3.92 ou o a possible 5.54 However, UniedHealhcare’s Medicare

Advanage plans have a below-average overall sar raing o only 3.23. By conras, Aena’s raing is 4.13, and Humana’s is 4.06.55 A leas in his case, bigger is no beter.

Insurers also commonly argue ha mergers are necessary o couner he increasing

consolidaion among healh care providers because larger insurers can exer greaer

bargaining power agains providers o keep prices low. However, he healh care sysem

canno engage in such an arms race. Wih ewer insurers and ewer providers, here

is less o an incenive o negoiae lower coss. I here is only one dominan provider

and one dominan insurer in an area, neiher will have any pressure o negoiae lower

prices, and beneficiaries, axpayers, and Medicare will all pay he excess. Te only

consumer riendly remedy o he concerning rend o provider consolidaion is o alsoapply greaer scruiny o hose mergers. Indeed, he Federal rade Commissionwhich

oversees mergers o providersrecenly moved o block a merger o wo healh sysems

in Souh Cenral Pennsylvania.56

Would consumer protections be sufficient?

Divesiures are a mehod ha prevens a merger rom creaing oo much concenraion

in cerain markes. Regulaors could ask Aena or Humana o sell is business in cerain

markes o an ouside compeior o mainain compeiion. wo previous mergers,UniedHealh-Sierra and Humana-Arcadian, were approved on he condiion ha hey

dives pars o heir Medicare Advanage business.

Bu he already high concenraion in Medicare Advanage markes and he barriers o

enry may mean ha compeiors o which Aena and Humana could dives may no

exis. Moreover, he UniedHealh-Sierra and Humana-Arcadian mergers only affeced

compeiion in a ew markeswo counies or he UniedHealh-Sierra merger and

45 or he Humana-Arcadian mergerwhich is ar ewer han he number o counies

affeced by his proposed merger.57 Ye he UniedHealh-Sierra merger sill resuled

in significan premium increases in he affeced markes, even wih divesiure. Mos

imporanly, divesiures would do nohing o preserve he possibiliy o uure compei-

ion in markes where he wo insurers currenly do no compee.

Insurers also poin o he medical loss raio, or MLR, as a proecion ha ensures ha

seniors will benefi rom he merger. Te MLR requires insurers o spend mos o heir

revenue rom premiums on medical expenses or consumers, hus guaraneeing ha

consumers see a reurn on heir premium paymens. Medicare Advanage plans mus

spend 85 percen o heir revenue on medical expenses.


12/19


Alhough he MLR provides some proecion agains a merged company charg-

ing inflaed premiums, his proecion is no sufficien. I i were, hen every merger

beween wo healh insurance companies would be in consumers’ ineres. Bu i is

enirely possible ha insurers in he Medicare Advanage marke are already saisy-

ing he MLR sandard. In he mos comparable marke, he large employer marke,

77 percen o plans were already meeing he 85 percen hreshold beore i wen ino

effec.58 I wo merging insurers boh have MLRs o 90 percen, or example, and hemerged company jacks up premiums such ha he resuling MLR drops o 85 percen,

hen consumers will have been harmed. Nor does he MLR proec agains premium

increases ha reflec higher medical coss.59

Lasly, he MLR is no plan specific bu insead a broad measure based on an insurer’s

aggregae Medicare Advanage spending a he sae and marke levels.60 Tereore, indi-

vidual plan offerings may no necessarily mee he MLR hreshold, and a merger could

allow insurers o offse a low MLR in one area wih a high MLR in a differen area.61

Would traditional Medicare act as a safety valve for seniors?

Seniors who ace higher coss due o he merger may be able o swich rom Medicare

Advanage o radiional Medicare. Bu pas experience suggess ha people end o

sick wih heir plan during he open enrollmen periodeven when premiums or

oher coss go up. In he Medicare prescripion drug program, or example, a small

racion o seniors swich plansand mos seniors who ace large premium increases

do no swich plans.62 Many may no know ha hey could ge a beter deal i hey

swiched heir ype o Medicare coverage.

radiional Medicare covers care provided o a Medicare beneficiary by any hospial,

physician, or oher provider ha acceps Medicare paiens anywhere in he counry.

Bu radiional Medicare also has high cos-sharing requiremens and no limi on ou-

o-pocke spending, so many seniors enrolled in radiional Medicare purchase supple-

menal coverage, or Medigap plans, o proec hemselves rom higher, unpredicable

coss. Bu when seniors swich rom Medicare Advanage o radiional Medicare, mos

saes allow plans ha provide supplemenal coverage o deny coverage o beneficiaries

or exclude coverage o pre-exising condiionsexcep when a Medicare Advanage

plan erminaes or a senior moves.63 Many beneficiaries may no be aware o hese limis.

Tese resricions would perhaps increase ou-o-pocke coss or swiching seniors and

may make radiional Medicare an unviable opion.

Lasly, premiums may increase due o he merger bu sill be lower han coss under

radiional Medicare. Also, Medicare Advanage plans have he abiliy o limi heir

neworks o medical providers, allowing hem o coninue o offer lower premiums han

radiional Medicare or he same benefis.64 Seniors who do no wan or need o be able

o go o any provider may hereore say in Medicare Advanage raher han swiching o

radiional Medicare.


13/19


Because he combined company would price is plans o maximize premiums wihou

encouraging a widespread migraion o radiional Medicare, many seniors would be

suck wih higher coss. As he American Medical Associaion wroe, “Seniors are no

likely o swich away rom Medicare Advanage plans o radiional Medicare in suffi-

cien numbers o make an anicompeiive price increase or reducion in qualiy unpro-

iable o a Medicare Advanage insurer.”65

Conclusion

Te Medicare Advanage marke is currenly highly concenraed. CAP’s analysis o

he overlap beween Aena and Humana in Medicare Advanage markes adds o oher

analyses ha show ha he proposed merger beween he wo companies would only

exacerbae his rend, likely resuling in higher premiums or seniors and higher coss

or he Medicare program. ellingly, a a Senae Judiciary Commitee hearing on he

proposed merger, he CEO o Aena would no guaranee ha savings rom he merger

would be passed along o consumers unil pressed hree imes.66

Tis analysis o one healh insurance marke in one o he wo proposed mergers is

jus par o he broader analysis o boh healh insurance mergers, which will be evalu-

aed or heir combined effec on poenial uure compeiion in all markes. Bu all

o he available evidence suggess ha he bar should be very high or approving hese

mergers and ha hey should be sopped absen clear and compelling evidence ha

hey wil l benefi consumers.

Topher Spiro is he Vice Presiden for Healh Policy a he Cener for American Progress.

Maura Calsyn is he Direcor of Healh Policy a he Cener. Meghan O’Toole is a Policy Analys for he Healh Policy eam a he Cener.


14/19


Appendix A: Methodology

CAP’s analysis uses he Medicare Advanage Landscape Files rom he Ceners or Medicare

& Medicaid Services, or CMS, rom 2008 o 2015.67 Tese files lis all o he nonsancioned

Medicare Advanage plans offered in hose years by couny and include he monhly pre-

mium or each plan. We also used CMS’ “Monhly Enrollmen by Conrac/Plan/Sae/

Couny” daa files or 2008 hrough 2015 o ideniy he insurer ha offers each plan in heLandscape files.68 Our analysis idenifies he counies where boh Aena and Humana plans

are offered. In 2011, Aena plans were under sancion by CMS and so were no included in

he 2011 Landscape file. Tereore, we did no include any daa rom 2011 in our daa se.

We creaed variables or he ype o Medicare Advanage plan. We caegorized he plans

by wheher hey are a healh mainenance organizaion plan, or HMO; a preerred pro-

vider organizaion plan, or PPO; a privae ee-or-service plan, or PFFS; or wheher hey

are all oher ypes o plans. Te mos common Medicare Advanage plans are HMO,

PPO, and PFFS plans.69

Ten, we used he ollowing regression models o measure he effec o Humana offering

a Medicare Advanage plan in a couny on Aena’s Medicare Advanage monhly premi-

ums in ha couny, as well as he effec o Aena offering a Medicare Advanage plan in a

couny on Humana’s Medicare Advanage monhly premiums in ha couny:

(1) APijs

= β0 + β

1H

js + β

2U

js + λ

+ ε

ijs

(2) APijs

= β0 + β

1H

js + β

2U

js + β

3HMO

i + β

4PPO

i + β

5PFFS

i + λ

+ ε

ijs

(3) HPijs

= β0 + β

1 A

js + β

2U

j + λ

+ ε

ijs

(4) HPijs = β0 + β1 A js + β2U js + β3HMOi + β4PPOi + β5PFFSi + λ + εijs

In hese models, “AP” and “HP” represen Aena and Humana monhly premiums

or Medicare Advanage plans, respecively, and “i”, “j”, and “s” are plan-, couny-, and

sae-level idenifiers, respecively. “H j” and “A

j” represen wheher Humana and Aena

offer plans in he couny, respecively. “HMO,” “PPO,” and “PFFS” are conrol variables

or he ype o plan. We also conrol or wheher UniedHealhcare offers plans in he

couny, “U j ,” and by year, “λ

.” Tereore, each observaion is “Plan i in Couny j in Sae s

in Year .” For hese regressions, we used clusered sandard errors by sae.

We also used he ollowing regression models o conrol or fixed effecs by sae, repre-

sened by “αs.”

(5) APijs

= β0 + β

1H

js + β

2U

js + λ

+ α

s + ε

ijs

(6) APijs

= β0 + β

1H

js + β

2U

js + β

3HMO

is + β

4PPO

is + β

5PFFS

is + λ

+ α

s + ε

ijs

(7) HPijs

= β0 + β

1 A

js + β

2U

js + λ

+ α

s + ε

isj

(8) HPijs

= β0 + β

1 A

js + β

2U

js + β

3HMO

is + β

4PPO

is + β

5PFFS

is + λ

+ α

s + ε

isj


15/19


Appendix B: Tables

Number of counties

with both Humana

and Aetna Medicare

Advantage plans

Alabama 3

Arizona 1

Arkansas 13

California 5

Colorado 7

Delaware 2

Florida 16

Georgia 31

Illinois 56

Iowa 56

Kansas 25

Kentucky 3

Louisiana 9

Maine 8

Missouri 67

Number of counties

with both Humana

and Aetna Medicare

Advantage plans

Nebraska 7

Nevada 1

New Jersey 6

New York 12

North Carolina 17

Ohio 35

Oklahoma 9

Pennsylvania 59

South Dakota 12

Texas 32

Utah 7

Virginia 21

West Virginia 42

Total 562

TABLE B1

Overlap between Aetna and Humana in the Medicare Advantage market, 2015

Sources: Authors’ analysis using Centers for Medicare & Medicaid Services, “2008–2015 MA Landscape Source Files,” available at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenin/ (last accessed December 2015); Centers for Medicare & Medicaid Services,“2008–2015 Monthly Enrollment by Contract/Plan/State/County,” available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-

Trends-and-Reports/MCRAdvPartDEnrolData/Monthly-Enrollment-by-Contract-Plan-State-County.html (last accessed December 2015).


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TABLE B2

Effect of competition from Humana on Aetna’s

Medicare Advantage monthly premiums

Aetna premium

(1)

Aetna

premium

(2)

Aetna premium

(5)

Aetna premium

(6)

Humana offers

Medicare Advantage

plans in the county

-24.12***

(3.535)

-25.20***

(3.325)

-12.14***

(3.107)

-12.89***

(2.895)

UnitedHealthcare

offers Medicare

Advantage plans

in the county

-10.71***

(3.320)

-9.306***

(3.153)

-7.761***

(1.405)

-6.674***

(1.300)

Year

2009-10.11***

(3.498)

-9.672***

(3.428)

-10.78***

(1.515)

-10.21***

(1.402)

2010-26.50***

(5.287)

-26.47***

(4.718)

-27.07***

(2.241)

-26.98***

(2.115)

2012

-40.25***

(6.358)

-38.88***

(5.798)

-40.66***

(3.062)

-39.32***

(2.913)

2013-61.25***

(5.551)

-65.20***

(5.297)

-54.95***

(2.026)

-59.16***

(2.075)

2014-59.75***

(5.884)

-63.87***

(5.901)

-52.71***

(1.953)

-57.15***

(2.036)

2015-41.15***

(4.956)

-47.33***

(4.973)

-35.36***

(1.767)

-41.54***

(1.886)

Plan type

HMO13.88**

(6.816)

14.31***

(1.583)

PPO46.13***

(7.991)

46.56***

(1.595)

PFFS44.44***

(3.772)

45.14***

(1.516)

State-clustered

standard errors?Yes Yes

State effects? Yes Yes

R-squared 0.190 0.299 0.242 0.352

Notes: Robust standard errors appear in parentheses. *** signifies p < 0.01, ** signifies p < 0.05, and * signifies p < 0.1. The number of observations foreach regression is 10,290 plans. The number in each column heading denotes the regression model as specified in Appendix A.

Sources: Authors’ analysis is based on Centers for Medicare & Medicaid Services, “2008–2015 MA Landscape Source Files,” available at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenin/ (last accessed December 2015); Centers for Medicare & Medicaid Services,

“2008–2015 Monthly Enrollment by Contract/Plan/State/County,” available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics- Trends-and-Reports/MCRAdvPartDEnrolData/Monthly-Enrollment-by-Contract-Plan-State-County.html (last accessed December 2015). See AppendixA for more information.


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TABLE B3

Effect of competition from Aetna on Humana’s

Medicare Advantage monthly premiums

Humana

premium

(3)

Humana

premium

(4)

Humana

premium

(7)

Humana

premium

(8)

Aetna offers Medicare Advantage

plans in the county

-3.853

(2.422)

-1.303

(2.752)

-6.182***

(0.493)

-3.551***

(0.350)

UnitedHealthcare offers Medicare

Advantage plans in the county

-7.626***

(1.418)

-6.639***

(1.580)

-7.564***

(0.388)

-7.699***

(0.275)

Year

200911.23***

(3.163)

20.93***

(2.357)

11.44***

(0.604)

21.10***

(0.429)

20107.681*

(4.551)

20.61***

(3.859)

8.876***

(0.601)

21.96***

(0.431)

2012-6.478**

(2.988)

19.20***

(2.681)

-5.713***

(0.614)

20.20***

(0.455)

2013-0.360

(3.161)

23.78***

(2.637)

0.969

(0.608)

25.56***

(0.451)

20143.140

(3.458)

27.76***

(3.450)

4.351***

(0.623)

29.11***

(0.462)

20153.317

(3.725)

28.86***

(3.724)

4.306***

(0.632)

30.00***

(0.468)

Plan type

HMO15.90**

(6.885)

14.36***

(0.537)

PPO66.66***

(3.646)

67.39***

(0.289)

PFFS

75.48***

(3.537)

77.47***

(0.330)

State-clustered standard errors? Yes Yes

State effects? Yes Yes

R-squared 0.020 0.474 0.073 0.537

Notes: Robust standard errors appear in parentheses. *** signifies p < 0.01, ** signifies p < 0.05, and * signifies p < 0.1. The number of observations foreach regression is 75,248 plans. The number in each column heading denotes the regression model as specified in Appendix A.

Sources: Authors’ analysis is based on Centers for Medicare & Medicaid Services, “2008–2015 MA Landscape Source Files,” available at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenin/ (last accessed December 2015); Centers for Medicare & Medicaid Services,“2008–2015 Monthly Enrollment by Contract/Plan/State/County,” available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-

Trends-and-Reports/MCRAdvPartDEnrolData/Monthly-Enrollment-by-Contract-Plan-State-County.html (last accessed December 2015). See Appendix

A for more information.


18/19


Endnotes

1 Liz Hoffman and others, “Aetna Agrees to Buy Humana for$34.1 Billion,” The Wall Street Journal , July 3, 2015, availableat http://www.wsj.com/articles/aetna-nears-deal-to-buy-humana-1435883861.

2 Aaron Smith, “Anthem to acquire Cigna, leaving only 3 biginsurance companies,” CNN Money, July 24, 2015, availabl eat http://money.cnn.com/2015/07/24/news/companies/

anthem-cigna-merger/.

3 Bourree Lam, “Health-Care Mergers: Good for Health-CareCompanies, Not So Goo d for Patients and Doc tors,” The

Atlantic , September 8, 2015, available at http://www.theatlantic.com/business/archive/2015/09/health-mergers-antitrust-competition/404224/.

4 U.S. Department of Justice and Federal Trade Commission,Horizontal Merger Guidelines (2010), available at http://www. justice.gov/atr/horizontal-merger-guidelines-08192010.

5 Federal Trade Commission and U.S. Department of Justice,“Improving Health Care: A Dose of Competition” (2004),available at http://www.justice.gov/atr/improving-health-care-dose-competition-report-federal-trade-commission-and-department-justice.

6 Leslie Small, “CEO Mark Bertolini: Humana deal willhelp Aetna compete in consumer-driven marketplace,”

FierceHealthPayer , August 6, 2015, available at http://www.fiercehealthpayer.com/story/ceo-mark-bertolini-humana-deal-will-help-aetna-compete-consumer-driven-mark/2015-08-06; Gretchen Jacobson and others, “MedicareAdvantage 2015 Data Spotlight: Over view of Plan Changes”(Menlo Park, CA: Kaiser Family Foundation, 2014), availableat http://kff.org/medicare/issue-brief/medicare-advantage-2015-data-spotlight-overview-of-plan-changes/.

7 Medicare.gov, “When can I buy Medigap?”, available athttps://www.medicare.gov/supplement-other-insurance/when-can-i-buy-medigap/when-can-i-buy-medigap.html (last accessed November 2015).

8 Leemore Dafny, Mark Duggan, and Subramaniam Ramana-rayanan, “Paying a Premium on Your Premium? Consolida-tion in the US Health Insurance Industry,” American Eco-nomic Review 102 (2) (2012): 1161–1185, available at http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.102.2.1161.

9 Leemore Dafny, “Health Insurance Industry Consolidation:What Do We Know From the Past, Is It Relevant in Lightof the ACA, and What Should We Ask?”, Testimony beforethe Senate Committee on the Judiciary, Subcommittee onAntitrust, Competition Policy, and Consumer Rights, “Exam-ining Consolidation in the Health Insurance Industry andits Impact on Consumers,” September 22, 2015, availableat http://www.judiciary.senate.gov/imo/media/doc/09-22-15%20Dafny%20Testimony%20Updated.pdf .

10 Ibid.

11 Ibid.

12 Dafny, Duggan, and Ramanarayanan, “Paying a Premiumon our Premium? Consolidation in the US Health InsuranceIndustry.”

13 Ibid.

14 Jose R. Guardado, David W. Emmons, and Carol K. Kane, “The

Price Effects of a Larger Merger of Health Insurers: A CaseStudy o f UnitedHealth-Sierra,” Health Management, Policyand Innovation 1 (3) (2013): 16–35.

15 Amy Burke, Arpit Misra, and Steven Sheingold, “PremiumAffordability, Competition, and Choice in the HealthInsurance Marketplace, 2014” (Washington: Office of theAssistant Secretary for Planning and Evaluation, 2014),available at http://aspe.hhs.gov/health/reports/2014/premiums/2014mktplaceprembrf.pdf .

16 Steven Sheingold, Nguyen Nguyen, and Andre Chappel,“Competition and Choice in the Health I nsurance Market-places, 2014-2015: Impact on Premiums” (Washington: Of-fice of the Assistant Secretary for Planning and Evaluation,2015), available at http://aspe.hhs.gov/sites/default/files/pdf/108466/rpt_MarketplaceCompetition.pdf.

17 Paul D. Jacobs, Jessica S. Banthin, and Samuel Trachtman,“Insurer Competition in Federally Run Marketplaces Is As-sociated With Lower Premiums,” Health Affairs 34 (12) (2015):2027–2035.

18 Jon R. Gabel and others, “In Second Year Of Marketplaces,New Entrants, ACA ‘Co-Ops,’ And Medicaid Plans Restrain Av-erage Premium Growth Rates,” Health Affairs 34 (12) (2015):2020–2026.

19 Sachin Waikar, “More Insurer s, Lower Premiums,”KelloggInsight , July 7, 2014, available at http://insight.kellogg.north-western.edu/article/more_insurers_lower_premiums.

20 The analysis looked only at states with federally facilitatedmarketplaces.

21 Waikar, “More Insurers, Lower Premiums.”

22 Eugene Wang and Grace Gee, “Larger Issuers, LargerPremium Increases: Health insurance issuer competitionpost-ACA,” Technology Science (2015), available at http://techscience.org/a/2015081104/.

23 Ibid.

24 Kate Ho and Robin S. Lee, “Insurer Competition in HealthCare Markets.” Working Paper 19401 (National Bureau of

Economic Research, 2015), available at http://www.nber.org/papers/w19401.

25 Dafny, “Health Insurance Industry Consolidation.”

26 Ibid.

27 Drew Altman, “Amid Merger Talk, a Look at Health Insurers’Medicare Business,” Washington Wire, July 1, 2015, availableat http://blogs.wsj.com/washwire/2015/07/01/amid-merg-er-talk-a-look-at-health-insurers-medicare-business/.

28 Gretchen Jacobson and others, “Medicare Advantage 2015Spotlight: Enrollment Market Update” (Menlo Park, CA:Kaiser Family Foundation, 2015), available at http://kff.org/medicare/issue-brief/medicare-advantage-2015-spotlight-enrollment-market-update/.

29 Brian Biles, Giselle Casillas, and Stuart Guterman, “Competi-tion Among Medicare’s Private Health Plans: Does It Really

Exist?” (New York: The Commonwealth Fund, 2015), avail-able at http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/aug/1832_biles_competi-tion_medicare_private_plans_ib_v2.pdf.

30 Alice Rivlin and Willem Daniel, “Strengthening Medicarefor 2030” (Washington: Brookings Institution, 2015),available at http://www.brookings.edu/~/media/Re-search/Files/Papers/2015/06/04-medicare-2030-paper-series/060315RivlinDanielMedicareAdvantage.pdf?la=en.

31 Jacobson and others, “Medicare Advantage 2015 DataSpotlight: Overview o f Plan Changes.”

32 Gretchen Jacobson, Jennifer Huang, and Tricia Neuman,“Medigap Reform: Setting the Context for UnderstandingRecent Proposals” (Menlo Park, CA: Kaiser Family Founda-tion, 2014), available at http://kff.org/medicare/issue-brief/medigap-reform-setting-the-context/.

33 Medicare.gov, “Medicare 2015 costs at a glance,” available at

https://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html#collapse-4809 (last accessedOctober 2015).

34 Kaiser Family Foundation, “Medicare Advantage” (2015),available at http://kff.org/medicare/fact-sheet/medicare-advantage/.

35 Jacobson and others, “Medicare Advantage 2015 DataSpotlight.”

36 The Herfindahl-Hirschman Index is calculated by summingthe squares of the market shares of individual firms in ageographic area. See Biles, Casillas, and Gu terman, “Compe-tition Among Medicare’s Private Health Plans.”

37 Ibid.

http://www.wsj.com/articles/aetna-nears-deal-to-buy-humana-1435883861http://www.wsj.com/articles/aetna-nears-deal-to-buy-humana-1435883861http://money.cnn.com/2015/07/24/news/companies/anthem-cigna-merger/http://money.cnn.com/2015/07/24/news/companies/anthem-cigna-merger/http://www.theatlantic.com/business/archive/2015/09/health-mergers-antitrust-competition/404224/http://www.theatlantic.com/business/archive/2015/09/health-mergers-antitrust-competition/404224/http://www.theatlantic.com/business/archive/2015/09/health-mergers-antitrust-competition/404224/http://www.justice.gov/atr/horizontal-merger-guidelines-08192010http://www.justice.gov/atr/horizontal-merger-guidelines-08192010http://www.justice.gov/atr/improving-health-care-dose-competition-report-federal-trade-commission-and-department-justicehttp://www.justice.gov/atr/improving-health-care-dose-competition-report-federal-trade-commission-and-department-justicehttp://www.justice.gov/atr/improving-health-care-dose-competition-report-federal-trade-commission-and-department-justicehttp://www.fiercehealthpayer.com/story/ceo-mark-bertolini-humana-deal-will-help-aetna-compete-consumer-driven-mark/2015-08-06http://www.fiercehealthpayer.com/story/ceo-mark-bertolini-humana-deal-will-help-aetna-compete-consumer-driven-mark/2015-08-06http://www.fiercehealthpayer.com/story/ceo-mark-bertolini-humana-deal-will-help-aetna-compete-consumer-driven-mark/2015-08-06http://www.fiercehealthpayer.com/story/ceo-mark-bertolini-humana-deal-will-help-aetna-compete-consumer-driven-mark/2015-08-06http://kff.org/medicare/issue-brief/medicare-advantage-2015-data-spotlight-overview-of-plan-changes/http://kff.org/medicare/issue-brief/medicare-advantage-2015-data-spotlight-overview-of-plan-changes/https://www.medicare.gov/supplement-other-insurance/when-can-i-buy-medigap/when-can-i-buy-medigap.htmlhttps://www.medicare.gov/supplement-other-insurance/when-can-i-buy-medigap/when-can-i-buy-medigap.htmlhttp://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.102.2.1161http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.102.2.1161http://www.judiciary.senate.gov/imo/media/doc/09-22-15%20Dafny%20Testimony%20Updated.pdfhttp://www.judiciary.senate.gov/imo/media/doc/09-22-15%20Dafny%20Testimony%20Updated.pdfhttp://aspe.hhs.gov/health/reports/2014/premiums/2014mktplaceprembrf.pdfhttp://aspe.hhs.gov/health/reports/2014/premiums/2014mktplaceprembrf.pdfhttp://aspe.hhs.gov/sites/default/files/pdf/108466/rpt_MarketplaceCompetition.pdfhttp://aspe.hhs.gov/sites/default/files/pdf/108466/rpt_MarketplaceCompetition.pdfhttp://insight.kellogg.northwestern.edu/article/more_insurers_lower_premiumshttp://insight.kellogg.northwestern.edu/article/more_insurers_lower_premiumshttp://techscience.org/a/2015081104/http://techscience.org/a/2015081104/http://www.nber.org/papers/w19401http://www.nber.org/papers/w19401http://blogs.wsj.com/washwire/2015/07/01/amid-merger-talk-a-look-at-health-insurers-medicare-business/http://blogs.wsj.com/washwire/2015/07/01/amid-merger-talk-a-look-at-health-insurers-medicare-business/http://kff.org/medicare/issue-brief/medicare-advantage-2015-spotlight-enrollment-market-update/http://kff.org/medicare/issue-brief/medicare-advantage-2015-spotlight-enrollment-market-update/http://kff.org/medicare/issue-brief/medicare-advantage-2015-spotlight-enrollment-market-update/http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/aug/1832_biles_competition_medicare_private_plans_ib_v2.pdfhttp://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/aug/1832_biles_competition_medicare_private_plans_ib_v2.pdfhttp://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/aug/1832_biles_competition_medicare_private_plans_ib_v2.pdfhttp://www.brookings.edu/~/media/Research/Files/Papers/2015/06/04-medicare-2030-paper-series/060315RivlinDanielMedicareAdvantage.pdf?la=enhttp://www.brookings.edu/~/media/Research/Files/Papers/2015/06/04-medicare-2030-paper-series/060315RivlinDanielMedicareAdvantage.pdf?la=enhttp://www.brookings.edu/~/media/Research/Files/Papers/2015/06/04-medicare-2030-paper-series/060315RivlinDanielMedicareAdvantage.pdf?la=enhttp://kff.org/medicare/issue-brief/medigap-reform-setting-the-context/http://kff.org/medicare/issue-brief/medigap-reform-setting-the-context/http://kff.org/medicare/fact-sheet/medicare-advantage/http://kff.org/medicare/fact-sheet/medicare-advantage/http://kff.org/medicare/fact-sheet/medicare-advantage/http://kff.org/medicare/fact-sheet/medicare-advantage/http://kff.org/medicare/issue-brief/medigap-reform-setting-the-context/http://kff.org/medicare/issue-brief/medigap-reform-setting-the-context/http://www.brookings.edu/~/media/Research/Files/Papers/2015/06/04-medicare-2030-paper-series/060315RivlinDanielMedicareAdvantage.pdf?la=enhttp://www.brookings.edu/~/media/Research/Files/Papers/2015/06/04-medicare-2030-paper-series/060315RivlinDanielMedicareAdvantage.pdf?la=enhttp://www.brookings.edu/~/media/Research/Files/Papers/2015/06/04-medicare-2030-paper-series/060315RivlinDanielMedicareAdvantage.pdf?la=enhttp://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/aug/1832_biles_competition_medicare_private_plans_ib_v2.pdfhttp://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/aug/1832_biles_competition_medicare_private_plans_ib_v2.pdfhttp://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/aug/1832_biles_competition_medicare_private_plans_ib_v2.pdfhttp://kff.org/medicare/issue-brief/medicare-advantage-2015-spotlight-enrollment-market-update/http://kff.org/medicare/issue-brief/medicare-advantage-2015-spotlight-enrollment-market-update/http://kff.org/medicare/issue-brief/medicare-advantage-2015-spotlight-enrollment-market-update/http://blogs.wsj.com/washwire/2015/07/01/amid-merger-talk-a-look-at-health-insurers-medicare-business/http://blogs.wsj.com/washwire/2015/07/01/amid-merger-talk-a-look-at-health-insurers-medicare-business/http://www.nber.org/papers/w19401http://www.nber.org/papers/w19401http://techscience.org/a/2015081104/http://techscience.org/a/2015081104/http://insight.kellogg.northwestern.edu/article/more_insurers_lower_premiumshttp://insight.kellogg.northwestern.edu/article/more_insurers_lower_premiumshttp://aspe.hhs.gov/sites/default/files/pdf/108466/rpt_MarketplaceCompetition.pdfhttp://aspe.hhs.gov/sites/default/files/pdf/108466/rpt_MarketplaceCompetition.pdfhttp://aspe.hhs.gov/health/reports/2014/premiums/2014mktplaceprembrf.pdfhttp://aspe.hhs.gov/health/reports/2014/premiums/2014mktplaceprembrf.pdfhttp://www.judiciary.senate.gov/imo/media/doc/09-22-15%20Dafny%20Testimony%20Updated.pdfhttp://www.judiciary.senate.gov/imo/media/doc/09-22-15%20Dafny%20Testimony%20Updated.pdfhttp://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.102.2.1161http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.102.2.1161https://www.medicare.gov/supplement-other-insurance/when-can-i-buy-medigap/when-can-i-buy-medigap.htmlhttps://www.medicare.gov/supplement-other-insurance/when-can-i-buy-medigap/when-can-i-buy-medigap.htmlhttp://kff.org/medicare/issue-brief/medicare-advantage-2015-data-spotlight-overview-of-plan-changes/http://kff.org/medicare/issue-brief/medicare-advantage-2015-data-spotlight-overview-of-plan-changes/http://www.fiercehealthpayer.com/story/ceo-mark-bertolini-humana-deal-will-help-aetna-compete-consumer-driven-mark/2015-08-06http://www.fiercehealthpayer.com/story/ceo-mark-bertolini-humana-deal-will-help-aetna-compete-consumer-driven-mark/2015-08-06http://www.fiercehealthpayer.com/story/ceo-mark-bertolini-humana-deal-will-help-aetna-compete-consumer-driven-mark/2015-08-06http://www.fiercehealthpayer.com/story/ceo-mark-bertolini-humana-deal-will-help-aetna-compete-consumer-driven-mark/2015-08-06http://www.justice.gov/atr/improving-health-care-dose-competition-report-federal-trade-commission-and-department-justicehttp://www.justice.gov/atr/improving-health-care-dose-competition-report-federal-trade-commission-and-department-justicehttp://www.justice.gov/atr/improving-health-care-dose-competition-report-federal-trade-commission-and-department-justicehttp://www.justice.gov/atr/horizontal-merger-guidelines-08192010http://www.justice.gov/atr/horizontal-merger-guidelines-08192010http://www.theatlantic.com/business/archive/2015/09/health-mergers-antitrust-competition/404224/http://www.theatlantic.com/business/archive/2015/09/health-mergers-antitrust-competition/404224/http://www.theatlantic.com/business/archive/2015/09/health-mergers-antitrust-competition/404224/http://money.cnn.com/2015/07/24/news/companies/anthem-cigna-merger/http://money.cnn.com/2015/07/24/news/companies/anthem-cigna-merger/http://www.wsj.com/articles/aetna-nears-deal-to-buy-humana-1435883861http://www.wsj.com/articles/aetna-nears-deal-to-buy-humana-1435883861


19/19

38 Ibid.

39 Zirui Song, Mary Beth Landrum, and Michael E. Chernew,“Competitive Bidding in Medicare: Who Benefits FromCompetition?”, American Journal of Managed Care18 (9)(2012): 546–552, available at http://www.ajmc.com/jour-nals/issue/2012/2012-9-vol18-n9/Competitive-Bidding-in-Medicare-Who-Benefits-From-Competition.

40 Gretchen Jacobson, Anthony Demico, and Tricia Neuman,“Data Note: Medicare Advantage Enrollment, by Firm, 2015”(Menlo Park, CA: Kaiser Family Foundation, 2015), availableat http://kff.org/medicare/issue-brief/data-note-medicare-

advantage-enrollment-by-firm-2015/.

41 Jacobson, Demico, and Neuman, “Data Note: MedicareAdvantage Enrollment, by Firm, 2015.”

42 Letter from Melinda Hatton to William Baer and Sylvia Bur-well, September 1, 2015, available at http://www.aha.org/advocacy-issues/letter/2015/150901-let-hatton-burwell-baer.pdf.

43 Bureau of the Census, “About Us,” available at http://cen-stats.census.gov/usa/usainfo.shtml (last accessed November2015).

44 MedPAC, “Medicare Advantage Program Payment System”(2015), available at http://medpac.gov/documents/payment-basics/medicare-advantage-program-payment-system-15.pdf?sfvrsn=0.

45 Mark T. Bertolini, “Examining Consolidation in the Health

Insurance Industry and its Impact on Consumers,” Testimonybefore the Senate Committee on the Judiciary, Subcommit-tee on Antitrust, Competition Policy, and Consumer Rights,September 22, 2015, available at http://www.judiciary.senate.gov/imo/media/doc/09-22-15%20Bertolini%20Testi-mony.pdf .

46 The Capitol Forum, “Aetna/Humana and Anthem/Cigna:Competition on ACA Exchanges Key Area of DOJ Inquiry, butLimited Overlap, Fragmented Markets, and Lowered EntryBarriers Render Lessening of Actual Competition Unlikely”(2015), available at https://thecapitolforum.com/wp-content/uploads/2015/09/Aetna-Humana-2015.09.14-1.pdf .

47 Jacobs, Banthin, and Trachtman, “Insurer Competition in Fed-erally Run Marketplaces Is Associated With Lower Premiums.”

48 Aetna, “Aetna to Acquire Humana for $37 Billion, CombinedEntity to Drive Consumer-Focused, High-Value Health Care,”Press release, July 3, 2015, available at https://news.aetna.com//news-releases/aetna-to-acquire-humana-for-37-bil-

lion-combined-entity-to-drive-consumer-focused-high-val-ue-health-care/; Bertolini, “Examining Consolidation in theHealth Insurance Industry and its Impact on Consumers.”

49 Kaiser Family Foundation, “Medicare Advantage.”


51 Bob Herman, “Aetna wants to build out Optum-like unitfrom Humana deal,” Modern Healthcare, September 17,2015, available at http://www.modernhealthcare.com/article/20150917/NEWS/150919895.

52 Optum, “About us,” available at https://www.optum.com/about.html (last accessed October 2015).

53 Herman, “Aetna wants to build out Optum-like unit fromHumana deal.”

54 Centers for Medicare & Medicaid Services, “2008-2015 MA

Landscape Source Files,” available at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrug-CovGenin/ (last accessed October 2015).

55 Ibid. CAP calculated these ratings by averaging the starratings across all plans offered by Aetna, Humana, andUnitedHealthcare in the CMS Landscape Source File.

56 Lisa Schencker, “FTC moves to block Penn State Hersheymerger wi th PinnacleHealth,” Modern Healthcare, December8, 2015, available at http://www.modernhealthcare.com/article/20151208/NEWS/151209877.

57 Letter from Hatton to Baer and Burwell.

58 Kaiser Family Foundation, “Explaining Health Care Reform:Medical Loss Ratio (MLR)” (2012), available at http://kff.org/

health-reform/fact-sheet/explaining-health-care-reform-medical-loss-ratio-mlr/.

59 American Hospital Association, “Why Medical Loss Require-ments Aren’t a Defense to Further Health Plan Consolidation(Commercial Market)” (2015), available at http://www.ad-vancinghealthinamerica.org/wp-content/uploads/2015/09/Plan-consolidation-MLR-factsheet_8-18-15_clean.pdf .

60 Ibid.


62 Kaiser Family Foundation, “The Medicare Part D PrescriptionDrug Benefit” (2015), available at http://kff.org/medicare/fact-sheet/the-medicare-prescription-drug-benefit-fact-sheet/.

63 Medicare.gov, “Guaranteed issue rights,” available at https://www.medicare.gov/supplement-other-insurance/when-

can-i-buy-medigap/guaranteed-issue-rights-scenarios.html(last accessed December 2015).

64 Medicare Rights Center, “Differences between OriginalMedicare and Medicare Advantage Plans,” available athttp://www.medicarerights.org/fliers/Medicare-Advantage/Differences-Between-OM-and-MA.pdf?nrd=1 (last accessedDecember 2015).

65 Letter from James Madara to William Baer, November 11,2015, available at https://download.ama-assn.org/resourc-es/doc/washington/proposed-health-insurance-mergers-letter-to-doj-11nov2015.pdf?cb=1447711612&retrieve=yes.

66 Anna Wilde Mathews and Brent Kendall, “Health Insur-ers Aetna, Anthem Defend Deals, Say Markets Will StayCompetitive,” The Wall Street Journal , September 22, 2015,available at http://www.wsj.com/articles/aetna-anthem-defend-insurance-deals-contend-markets-will-remain-competitive-1442938512.

67 Centers for Medicare & Medicaid Services, “2008-2015 MALandscape Source Files.” Program of All-Inclusi ve Care forthe Elderly, or PACE, plans; Special Needs Plans; Part B-onlyplans; Employer-sponsored plans (800 series); and plans un-der sanction are excluded. Prescription-drug-only plans andMedicare-Medicaid plans also are not included. This data filedoes include Medicare Advantage plans that do not offerPart D drug coverage, but most Medicare Advantage plansinclude drug coverage.

68 Centers for Medicare & Medicaid Services, “2008-2015Monthly Enrollment by Contract/Plan/State/County,” avail-able at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MCRAdvPartDEnrol-Data/Monthly-Enrollment-by-Contract-Plan-State-County.html (last accessed October 2015).

69 Kaiser Family Foundation, “Medicare Advantage.”

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