Clash of the insurance titans: What it means for health care as we know it

In the past few days we’ve witnessed something we never thought possible: The biggest players in health insurance are contemplating mergers that are nothing short of gargantuan. If they come to pass, they will create shifts in market dynamics the likes of which America’s health care system has never seen, and the effects on its many stakeholders could be catastrophic.

There are many factors behind these possible mergers, two of which are putting the system on life support:

—   In the three years since the Affordable Care Act – ObamaCare – went into effect, health insurance companies have been required by law to provide coverage to everyone, including people with pre-existing conditions and chronic illnesses. Now that they’ve figured out just how much that costs, they’re seeking permission from the states to raise premiums to cover their losses. But there’s no guarantee that the commissioners in various states will accept those requests.

—   There is great uncertainty in the industry about what may happen if the Supreme Court strikes down a portion of the law in its imminent decision on King v Burwell.

When the major players consolidate in an effort to stay afloat, the trickle down goes straight to the patient. They’ll have fewer options for coverage, fewer doctors in network and fewer participating hospitals. It’s a lose-lose-lose situation.

The costs and uncertainty have insurers fearing a tailspin in the coverage market that could result in even further losses – a concern that, along with rising administrative costs, has forced them to contemplate maneuvers that seemed impossible just three years ago. And the inevitable outcome of these maneuvers will be higher premiums and fewer health care options – the exact opposite of what the law intended.

Consider what might happen if Humana or Cigna is acquired by an industry giant like Aetna, Anthem or United Healthgroup.

—   Humana, with its strong Medicare Advantage business, is an attractive target for the larger companies, which want to expand their coverage to the more than 50 million Medicare beneficiaries, a number that grows daily as baby boomers reach the age of 65. But a merger of Humana with a larger company would almost certainly force medical providers and hospitals that take care of Medicare patients to lower their rates. And that, in turn, would force the providers and hospitals to change the way they provide care.

—   Cigna, too, has a clientele that is attractive to the industry giants – employers. The large companies, by merging with Cigna, could spread out their risk by taking on more employers, which would enable them to enhance their market share and gain greater negotiating leverage with providers and hospitals. In the short run, that could mean a better deal for employers. But it’s a double-edge sword – because when employers go out to bid, which they typically do every three years, they would have fewer options available for their employees. Ultimately, a merger would give the insurers greater leverage to drive up rates.

—   Another attractive “smaller” player is Aetna, with its focus on technology and information systems, especially on the provider side. Its assets in this regard make it a prime target for a merger.

But any of these mergers would just add to those that have already been taking place in the health care industry: the consolidations of providers and hospitals into exclusive networks that have limited the options available to subscribers.

In some ways, what’s happening in the insurance industry mirrors what happened in the airline industry. The major airlines consolidated, resulting in less competition and fewer choices for travelers. Air travel has now become a suboptimal service, and people have to put up with it because there are no alternatives.

The same thing could happen to health care. When the major players consolidate in an effort to stay afloat, the trickle down goes straight to the patient. They’ll have fewer options for coverage, fewer doctors in network and fewer participating hospitals. It’s a lose-lose-lose situation.

Economics 101 tells us that when you raise taxes on the rich, they don’t end up paying more taxes. They find ways to game the system. This is exactly what’s happening in the health insurance industry. The big players aren’t going to take on losses. They’ll find ways to game the system and remain sustainable.

Providing health care to everyone has created unintended consequences that need to stop before two critical constituents – consumers and the people who take care of them – end up getting hurt.

If we don’t change the economics of sustainability without penalizing consumers and providers, the dominoes will continue to fall. Ultimately, ObamaCare will dismantle itself, because the economic forces that have taken over the system were beyond anyone’s prediction.

If this is not an SOS, then I don’t know what is. It’s time for members of Congress to wake up, reflect on what has transpired in the past three years, reach out across the aisle and go back to the drawing board. If they don’t, the people they set out to protect will be staring at nothing but higher premiums and fewer choices.