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Beating America’s Health-Care Monopolists

BERKELEY – The United States’ Affordable Care Act (ACA), President Barack Obama’s signature 2010 health-care reform, has significantly increased the need for effective antitrust enforcement in health-insurance markets. Despite recent good news on this front, the odds remain stacked against consumers.

As Berkeley economics professor Aaron Edlin has pointed out, consumer abstention is the ultimate competitor. Companies cannot purchase or contrive a solution to consumers who say, “I’m just not going to buy this.” But the ACA requires individuals to purchase health insurance, thus creating a vertical demand curve for potential monopolists. Under these conditions, profits – and consumer abuse – can be maximized through collusion.

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It is not surprising, then, that in 2015 some of the largest private American health-insurance companies – Anthem, Cigna, Aetna, and Humana – began exploring the possibility of merging. If they could reduce the number of national insurers from five to three, they could then increase their market power and squeeze more profits from consumers.

The industry trotted out all the standard arguments to justify such consolidation, claiming that it would actually benefit consumers by making health-insurer operations more efficient. No mention was made that, according to the Center for American Progress, competition between Aetna and Humana just in the Medicare Advantage health-insurance market reduces the average annual premium customers pay each company by $155 and $43, respectively.

In July, the US Justice Department sued to block a merger between Aetna and Humana, after the deal was on its way to being rubberstamped by regulators in Illinois, Iowa, Kentucky, North Carolina, and other states. In fact, Ohio Governor John Kasich’s Department of Insurance approved the merger in May, and then kept its decision secret for more than a month.

Simple partisanship helps to explain why some states want to push these mergers through. Republicans aren’t eager to ensure the proper functioning of a major reform enacted by a Democratic administration. They conveniently forget that the ACA’s central features – an individual mandate to purchase health insurance and the establishment of health-insurance exchanges – were conceived by the conservative Heritage Foundation and originally implemented by Mitt Romney when he was the Republican governor of Massachusetts in the mid-2000s.

Another explanation for the momentum behind health-insurer mergers is lobbying. Industry lobbyists maintain a social affinity with regulators and politicians, with whom they once worked in government or the private sector, and whom they still see on the cocktail-party circuit in Washington, DC, and state capitals. They ply their targets with plausible-sounding arguments, talking points, and suggestions that campaign or “super-PAC” contributions will find their way to politicians whose policies reward discrete, organized interests, even if they are very bad for America’s amorphous and unorganized consumers.

So, on one side of the divide we have the major health insurers, which all maintain well-funded, national lobbying operations. On the other side, at least for the past nine months, we’ve had the younger of us, Michael DeLong, serving as the Director of the Coalition to Protect Patient Choice (CPPC), funded by the Service Employees International Union to collects facts and figures about health-insurer mergers for state and local consumer groups. If states hold public hearings to determine whether health-insurer mergers are warranted and serve the public interest, these groups can submit comments and possibly testify.

State and local consumer groups nationwide have been very worried about health-insurer monopolization. But they are often underfunded and ill equipped to assess the likely consequences of mergers, and to make valid technocratic arguments against them.

The CPPC, too, is operating on a shoestring budget, and it is fighting an uphill battle. It has submitted comments on health-insurer mergers for proceedings in California, Delaware, Florida, Georgia, Illinois, Iowa, Indiana, Missouri, New York, Ohio, Virginia, and Wisconsin; it has testified at hearings in California, Delaware, Florida, Missouri, New York, Virginia, and Wisconsin; and it has armed consumer groups and unions with relevant facts and figures. Despite all this activity, it is being massively outgunned.

In one of the worst pieces ever to appear in the Washington Post, its Op-Ed columnist Robert Samuelson claimed that disputes among lobbyists in America today take place on a level playing field. “If the rich were all powerful, their taxes would be much lower,” he wrote. “The poor and middle class do have powerful advocates. To name three: AARP for retirees; the AFL-CIO for unionized workers; the Center on Budget and Policy Priorities [CBPP] for the poor.”

The AARP is surely a powerful advocate: its members’ concerns – or at least the AARP’s version of those concerns – are often taken into account at the highest levels of government. But Samuelson anachronistically treats the AFL-CIO as if it were still the powerhouse that it was in the 1950s; and his suggestion that the CBPP has the same degree of legislative influence as Anthem, Cigna, Aetna, and Humana is laughable to any unbiased observer, despite the admirable work it does.

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The CPPC has risen to the challenge and provided a worthwhile service, by bringing past consumer-protection violations and noncompliance issues to health-insurance regulators who are willing to listen. But all of us who want to put consumers before corporations could have used more manpower and background information from the beginning. When many state and local consumer groups lack even one full-time staff member who is familiar with antitrust issues, we’re a long way from properly functioning democracy.

Now that the Justice Department has stepped in, we can only hope that this story will have a happy ending, and that the courts will recognize that these mergers are anticompetitive and immensely harmful to consumers.