Insurance Commissioner Puts Aetna And Humana In Hot Seat Over Merger Deal

Posted April 26, 2016  By Ana B. Ibarra

California’s insurance commissioner, Dave Jones, put executives of insurance giants Aetna Inc. and Humana Inc. in the hot seat Tuesday over their proposal for a merger that could create the nation’s third largest insurer.

Jones heard testimony from opponents and proponents of the plan, and he administered a dose of his own doubt.

“I am skeptical in light of past studies,” he said, referring to reports that have shown health insurance mergers often don’t benefit consumers.

The representatives of Aetna and Humana argued otherwise, claiming that combining the two companies would lower costs, improve the quality of health care and expand access to it.

They were challenged by consumer and provider groups, who argued the opposite — that the merger would lead to higher costs and reduced access, especially for chronically ill patients.

Aetna announced last summer that it planned to buy Humana for $37 billion, adding to a wave of proposed mergers in the health insurance industry. Also pending is a proposal by Anthem to purchase Cigna for $52 billion in a deal that would catapult the combined company past UnitedHealthcare to become the nation’s top insurer. Jones reviewed the Anthem-Cigna deal in a public hearing last month.

Jones, who plans to run for state attorney general in 2018, does not have the power to block these acquisitions, but he can make recommendations to the Federal Trade Commission and the Department of Justice, who have the final say.

Fran Soistman, executive vice president and head of Medicare and Medicaid business at Aetna, said his company’s planned merger would combine its strength in commercial health coverage with Humana’s focus on Medicare. That, he said, would result in greater access to higher quality care at a lower cost.

Despite its plans to expand in California, Aetna has no plan to join Covered California, the state insurance exchange, in 2017, Soistman said.

Soistman and Jaewon Ryu, Humana’s President of Integrated Care and Delivery, estimated that their merger would save $1.25 billion in 2018. How much of that would translate into savings for consumers, however, was not clear.

The savings would come from multiple areas, they said, including elimination of redundancies in administration, information technology and operations systems.

When asked by Jones to estimate how much premiums would be reduced as a result of those savings, Soistman said company officials had not quantified it yet but were strongly committed to ensuring that the savings would go back into consumers’ pockets.

However, consumers testifying at the hearing were quick to cite Aetna’s large rate increases in the past.

“We’ve been closely watching Aetna,” said Tam Ma, policy counsel with Health Access, a consumer advocacy group. “All these companies have had problems and could be doing better. However, Aetna especially has had problems when it comes to these unreasonable rate increases. As a result, small businesses have had to pay more than they should have for care.”

Last year, California’s Department of Managed Health Care criticized Aetna for raising its premiums on small businesses by 21 percent. That was the fourth time since 2013 that California regulators had found Aetna rate increases to be “unreasonable.”

Consumer advocates on Tuesday said that was a worrisome sign and questioned whether the proposed merger with Humana might yield yet more rate increases for consumers and employers.

Soistman acknowledged that Aetna has faced problems with rate increases in its small group market.

“We’re making every effort to offer a range of plans that would allow our small group customers to select an option that best meets their needs,” he said. “However, in 2013 [premium] adjustments were necessary to respond to the market.”

He added that medical costs increased dramatically in 2014, and it became clear that Aetna’s initial cost estimates had been too low.

Soistman and Ryu sought to allay concerns that their merger would restrict competition in the insurance market, especially for Medicare beneficiaries. Only 8 percent of the 54 billion people enrolled in Medicare nationwide would get their health benefits from the combined Aetna-Humana company, they said.

In California, Humana provides coverage under the Medicare Advantage program to over 60,000 people in 21 counties, while Aetna covers about 18,000 people. If the transaction is approved, the combined company would still cover less than 2 percent of California’s Medicare beneficiaries, according to numbers provided by Aetna.

DaVita Healthcare Partners, one of the largest kidney care companies in the U.S., which provides care for a large number of Medicare beneficiaries, submitted a letter to Jones registering its concerns about the proposed merger.

“Left unchecked, health insurance consolidation creates risks for the chronically ill patients we care for, including loss of access and increased cost,” wrote Jeremy Van Haselen, vice president of state government affairs for DaVita. “Health insurers have begun to use a variety of tactics to exclude chronically ill patients from their plans.”

Van Haselen cited insurance company attempts to cut costs by narrowing their networks and limiting patients’ access to their preferred dialysis providers as examples of such tactics.

He added: “These activities are occurring in a pre-merger environment; our concern in the kidney care community is that they will only be exacerbated with further industry consolidation.”