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Top U.S. health official emphasizes need for insurer competition

July 18, 2016

The Obama administration’s top health official is promoting the importance of competition to insurance markets, as the Justice Department is poised to decide on two massive deals among four of the health-plan industry’s biggest players.

Health and Human Services Secretary Sylvia Mathews Burwell on Friday said competition among insurers can reduce costs that consumers face and improve the quality of their health coverage. She declined to comment on her department’s view of Aetna Inc.’s proposed $37 billion purchase of Humana Inc. or Anthem Inc.’s planned $48 billion deal for Cigna Corp. If both mergers are completed, the industry’s five largest companies would be reduced to three.

“When there is competition, that creates downward price pressure, and it also creates upward quality pressure,” Burwell said in a brief interview in Fort Dodge, Iowa. “We’ve always thought and talked about why competition is an important part of the overall picture, and that’s not just in the marketplace but overall for the nation in terms of our health care.”

Pushing Obamacare

Burwell traveled to Iowa in an effort to explain how the Patient Protection and Affordable Care Act, also known as Obamacare, has improved care for Medicare patients. The act, one of President Barack Obama’s signature domestic policy accomplishments, has extended health insurance coverage to about 20 million people, primarily by expanding eligibility for Medicaid and creating new markets where individuals can buy health plans, often with subsidies. The merger review gives the administration another chance to help guide the future of U.S. health care.

Those new markets, known as exchanges, rely on private insurers to offer health plans. The Obama administration has had to contend with companies such as UnitedHealth Group Inc., the largest in the industry, exiting many markets after suffering losses. The president wrote an article published last week in the Journal of the American Medical Association suggesting that a so-called “public option” or government-run health plan could help increase competition in some markets.

“More can and should be done to enhance competition in the marketplaces,” the president wrote. “Congress should revisit a public plan to compete alongside private insurers in areas of the country where competition is limited.”

Burwell said in Des Moines that there are some markets where competition is “challenging,” without naming them. She said competition can foster innovation and create a healthy balance in negotiations among doctors, hospitals and insurers.

“Competition needs to be at a provider level and needs to be at an insurer level,” Burwell said. “When there’s competition in both settings, that creates an even playing field for both sets of players.”

Antitrust scrutiny

While the Obama administration hasn’t publicly signaled how it views the mergers, the Justice Department’s No. 3 official has said he’s taking a close look at the health insurer deals, which he has called a “game changer.” The official, Bill Baer, has stopped a string of mergers during his tenure, including Halliburton Co.’s proposed takeover of Baker Hughes Inc., which would have combined the second- and third-largest oil-services firms in the industry.

In June, Baer told a group of antitrust lawyers that combining the country’s largest health insurers would lead to “substantial consolidation” in the industry, and antitrust enforcers “cannot afford to let up.”

Burwell’s department can weigh in on the deals with the Justice Department, which has the final say on whether to attempt to block the deals because of their impact on competition. Burwell declined to comment on those discussions. “We support as asked,” she said.

Employer market

Federal antitrust officials at the Justice Department are reviewing Aetna’s proposed takeover of Humana and Indianapolis-based Anthem’s bid for Cigna. The combination of Anthem and Cigna would create the biggest U.S. health insurer by membership, topping UnitedHealth. Together, the firms would have a large position in the market for coverage sold to big companies and other employers.

Aetna’s bid for Humana would allow the buyer to expand in the market for private health plans for the elderly, called Medicare Advantage. Humana is already a leader in Medicare Advantage and the combined firm would be by far the biggest in those policies.

The Justice Department has told Anthem that the Cigna deal threatens competition and that selling parts of the business probably wouldn’t sufficiently address that issue, people familiar with the matter said last month. That raises the possibility that the U.S. will sue to block the merger, which may lead the companies to a court fight or push them instead to seek deals with other, smaller insurers.

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