Affordable Care Act Leads to Fewer For-Profit Insurers

National for-profit insurers appear to be on an anxious mission to consolidate, which will reduce competition and consumer choice, wrote Dr. Scott Gottlieb in a commentary in the Wall Street Journal.  

Aetna announced last week a $37 billion deal to acquire Humana. Anthem and Cigna also are in merger talks, too.

If the Anthem-Cigna merger succeeds, the national arena of big insurers will fall from five to three, which Gottlieb, a physician and resident fellow at the American Enterprise Institute, describes as a “direct consequence of ObamaCare.”

Gottlieb wrote that the component of the plan that called for not-for-profit co-ops, underwritten by $2.5 billion in grants, has largely failed.

The Act also supports consolidation among hospital systems, anticipating that if systems grew to critical mass, they would be able to market their own health insurance directly to patients. The strategy poses regulatory questions, Gottlieb wrote, and has not succeeded in the past.

Further, he said, the health care law “tilted the playing field against for-profit health plans.”

The law sets different caps, for example, on how much insurers can spend on operating expenses. Large for-profit insurers cannot spend more than 15% of their revenue on operating costs. For hospital plans and co-ops, the cap is 20%.

“The wave of mergers poised to sweep the industry is a result of this kind of regulation,” he wrote. “To sustain themselves, insurers must spread fixed costs over a larger base of members. The bigger they are, the easier it is to meet the government-imposed cap on their operating costs while cutting their way to profitability.”

This same pressure discourages new health plans from launching, he wrote.

“ObamaCare’s architects saw these trends coming—and welcomed them,” he wrote. “They mistakenly believed that consolidation would be good for patients, on the theory that larger companies would have more capital to invest in innovations thought to improve coordination of medical care …”

This “was a profound miscalculation,” he wrote. Such novel concepts historically have come from entrepreneurial firms, often backed by venture capital, which is less abundant since the Act’s passage.

Aetna’s acquisition of Humana will shift the majority of its business from employer-based plans to government insurance plans. That, combined with other merger activity, will reduce the competition that leads to clinical advances and improves outcomes for patients, Gottlieb wrote.

“Congress could provide regulatory relief by lifting the rules that impede new health plans from entering the market,” he wrote, “but such reform, sadly, seems politically improbable.” S