When Size matters

sumoWill Cigna And Anthem Merge? How Health Insurance Companies Pump Money Into Politics

http://www.ibtimes.com/will-cigna-anthem-merge-how-health-insurance-companies-pump-money-politics-2376438

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Are we headed towards the “battle of the Titans”.. we have seen when the Prescription Benefit Managers (PBM) have acquired the dominate share of the market.. they force pts to use particular pharmacies or their own mail order facilities. As the generic industry consolidate and now have an estimated 88% of the the market place.. we have seen pricing of generics go thru the roof. The next major consolidation is of the insurance industry. IMO, we have a estimated 30%-40% of all healthcare dollars being consumed by the infrastructure overhead and profits of many middlemen… All of these middlemen have evolved over the last 30-40 years under the pretense of saving the system money.  Our country spends about $8000/person (2.5 TRILLION) on healthcare. Perhaps ONE-THIRD is spend on “saving money” by middlemen.. some 800 BILLION/yr. And who is picking up this healthcare tab? A larger and larger share is done by Federal/State governments. Some estimates have the government paying over 50% of all healthcare costs. At some point, be it 60%-70%-80% of Uncle Sam paying the tab… Congress is going to have to realize that many/most/all of those infrastructures and profits are largely a waste and their original goal of saving money has not only not been met, but has increased the overall cost of healthcare. Even with ACA/Obamacare we have 10%-15% of the population that is under/uninsured, could that 800 Billion in middleman costs be better devoted to providing care to those in our society? As all of these middlemen consolidate are they laying the ground work for Uncle Sam to be the one with all the bargaining power and take the position of dictating what infrastructure and profits these middlemen are going to be allowed.. Just like these middlemen had dictated to healthcare providers what they are allowed to charge for their services.

The art of the deal? Cigna and Anthem are spending big to push regulators to approve a giant merger — one that could drive premiums up and limit treatment and coverage options.

Is bigger necessarily better? That age-old question is no abstraction when it comes to your healthcare premiums, as Cigna and Anthem Blue Cross Blue Shield are pushing to merge into the largest health insurance company in America. With consumer groups, physicians and hospital officials insisting that the consolidation threatens to limit medical care and jack up insurance prices for millions of Americans, regulators in one small state, Connecticut, are positioned to play a pivotal role in determining whether the companies get the approval they need.

The state is home to Cigna and has long been friendly to the industry, building up a reputation as the insurance capital of America. But some watchdog groups say that with a recent personnel move inside the state government, the friendship has gotten too close for comfort.

When Anthem’s plan to acquire Cigna was being negotiated in early 2015, Connecticut’s Democratic Gov. Dannel Malloy appointed Katharine Wade as his state’s insurance commissioner: She was a longtime Cigna lobbyist whose father-in-law works at a law firm that lobbies for the company, whose mother and brother previously worked at Cigna, and whose husband still does. She was also a top official of the major lobbying group for the state’s health insurance industry. As commissioner, she appointed a top deputy who worked at Cigna and she had a former longtime Cigna employee serve as an agency counsel in the merger review. As Wade continues to oversee Connecticut’s review of Cigna’s merger, she recently secured a position chairing a healthcare policy committee for insurance commissioners across the country. Malloy’s decision to appoint Wade to such a powerful regulatory post on the eve of the merger was not made in a vacuum. It came after employees of Cigna, its lobbying firm Robinson & Cole and Anthem delivered more than $1.3 million to national and state political groups affiliated with Malloy, including the Democratic Governors Association (DGA), the Connecticut Democratic Party, Malloy’s own gubernatorial campaign and a political action committee supporting Connecticut Democrats.

International Business Times reviewed campaign finance data dating back more than a decade. Since Malloy’s first successful run for governor in the 2010 election cycle, donors from the insurance companies and the lobbying firm have given more than $2 million to Malloy-linked groups, according to the figures compiled by PoliticalMoneyLine and the National Institute on Money In State Politics. Almost half that cash has come in since 2015, the year the merger was announced.

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Malloy had previously served as a finance chairman of the DGA, was named DGA chair-elect in 2014, and assumed control of the organization as of late last year. In the 2016 election cycle, Cigna and Anthem have become among the largest donors to the group, according to the nonpartisan Center for Responsive Politics. In the midst of the merger push, Anthem has also hired public relations firm SKDKnickerbocker — the same firm that helped run Malloy’s first successful campaign for governor.

GettyImages-165538106 Connecticut’s Democratic Gov. Dannel Malloy (pictured) appointed Katharine Wade as his state’s insurance commissioner. She was a longtime Cigna lobbyist. Photo: Christopher Capozziello/Getty Images

Anthem and Cigna have touted the deal as one that will help consumers. They both have a lot on the line in getting the merger approved: The former could be forced to pay $1.8 billion in termination fees to Cigna if the deal is blocked, and the latter’s executives and shareholders could miss out on a potential jackpot from a successful sale. In light of that, Cheri Quickmire of the Connecticut branch of Common Cause said that the campaign cash and the Wade appointment are not happenstance — and that consumers should question whether the insurance industry is unduly tilting the merger review in its own favor.

“This looks like a conflict of interest, not a mere coincidence,” said Quickmire, whose group aims to reduce the influence of money in politics. “Hiring a lobbyist for the industry to be the regulator of that industry does not seem appropriate. She should not be in charge of the review, and people should definitely be worried that if she doesn’t recuse herself, the review will not be impartial.”

Asked about the faster pace of donations since the merger talks in 2015, a DGA official told IBT that “the donations have been consistent over the last few years —  and equivalent with what the companies are giving the RGA,” a reference to the Republican governors’ group.

A spokesperson for Malloy, Christopher McClure, defended the governor’s appointment of Wade, telling IBT that she is “a person of integrity, one who is well regarded for her deep experience and knowledge of the industry, and also for her collaborative approach with stakeholders.” While prominent politicians such as Hillary Clinton have warned about potential negative consequences of the merger, Malloy — a top Clinton surrogate set to co-chair the national Democratic Party’s platform committee — has not called for Wade to recuse herself from the matter.

For her part, Wade has already proven to be merger-friendly: In January, her department approved a controversial deal to combine Connecticut-based Aetna with Humana. Wade’s agency only announced that move last week, and its approval came without Connecticut regulators holding a public hearing on the matter — a move that drew scathing criticism from consumer and physician groups.

As the separate Cigna-Anthem merger has progressed, Wade has resisted calls to recuse herself, asserting that she has no association with the company, even though she admitted such an association in her disclosure filings with Connecticut’s Office of State Ethics. That office, whose board is dominated by appointees of Malloy and other state Democrats, has declined to back calls for her to remove herself from the proceedings, and Wade says she will conduct an impartial review of the merger.

“I am following the Connecticut ethics statutes and I have taken the appropriate measures that allow me to carry out my duties as Insurance Commissioner,” Wade told IBT in a written statement. “I am confident that nothing in my professional background or in my family’s associations will adversely affect my ability to take action fairly, objectively and in the public interest. Consumer protection is first and foremost the mission of state insurance regulators and safeguarding the best interest of Connecticut consumers is a mission I take very seriously.”

16687569380_6d2c0b0042_k Consumer watchdog groups say Gov. Malloy (left) may be compromised by campaign donations from Cigna and Anthem, and that Katherine Wade (right) should not be in charge of the merger review, given her past lobbying role and family ties within Cigna. Photo: Governor Dannel Malloy/Flickr/Creative Commons

Those arguments, though, have not allayed watchdogs’ worries.

“Americans are entitled to government where the key figures are genuinely distinct from the special interests we need them to regulate with a healthy skepticism,” said Jeff Hauser, who directs the Revolving Door Project, a nonpartisan ethics watchdog group. “When a decision-maker faces a decision where he or she has strong personal and familial ties to a corporation with millions or billions at stake, recusal isn’t just the best option; it is the only option.”

While criticism of her role mounts, Wade is taking a hands-on approach to the merger. Emails obtained by IBT make reference to her seeking biweekly conference calls with Cigna and Anthem about the companies’ progress on the merger with other state regulators. Visitor logs obtained by IBT show that during just the last eight months of 2015, Wade and her staff held 24 in-person meetings with officials from Cigna, Anthem or the companies’ lobbyists. Wade’s agency has also worked with Malloy’s office on pushing new legislationbacked by the health insurance industry — that would empower Connecticut officials to shield financial information about the companies from open records laws.

Former Connecticut Attorney General Richard Blumenthal, a Democrat who is now the state’s senior U.S. senator, is among those raising questions about the Cigna-Anthem merger. The state office he used to lead could be a regulatory counterweight in both reviewing the merger and serving as an impartial check on Wade. That office, though, is now run by George Jepsen, a Democrat whose wife was a Cigna executive. Jepsen had recused himself from the matter until his wife left the company late last year.

Many experts say that merged companies end up pocketing the recouped cash as profit.

Since the 2014 election cycle when Jepsen ran for a second term, Cigna and Anthem (and Wellpoint, as Anthem used to be named) have together delivered $175,000 to the Democratic Attorneys General Association — a group that supports Jepsen, and that Jepsen has said he has been “an active participant” in, including with fundraising. Last month, Jepsen’s aide blocked the release of any merger-related correspondence between the state attorney general’s office and Cigna and Anthem, saying it is exempt from Connecticut’s open records laws.

Though Connecticut is a small New England state, the effects of its regulatory decision on the merger could be felt across the country by those like Maureen Murphy, for whom insurance choice is a real issue. A 55-year-old data collector who moonlights as a waitress in Northern Virginia, she was only able to get the insurance policy she needed — and could afford on her $23,000 a year income — through the insurance exchange available to her. The Anthem-Cigna merger could reduce the options on that exchange to just two insurance plans, and could similarly reduce the choices on exchanges throughout the country.

“When you hear that there is going to be these mergers to create these monster insurance companies, you know it’s going to get worse,” Murphy told IBT after testifying at a regulatory hearing about the deal in Richmond, Virginia, last week. “They are going to be so big, you can’t negotiate with them, you can’t go to a different plan. They will control everything, and people like me will have no choice but to keep paying the higher premiums and get less coverage, which is already happening.”

A Debate Over the Effect of Mergers

Anthem and Cigna have presented a much cheerier view of what the future would look like if they receive regulatory approval for the merger deal they announced in July of 2015. The $48 billion transaction they proposed would create what the companies say is a conglomerate with more than 53 million members and more than $115 billion in annual revenues. On the basis of membership, the new firm would be the largest insurer in the United States. With premiums and deductibles rising, company officials say that size will benefit consumers by empowering the company to squeeze savings out of the healthcare system, and promote the kind of collaboration that can help physicians more effectively treat their patients.

“The combined companies will operate more efficiently to reduce operational costs and, at the same time, further our ability to manage what drives costs, helping to create more affordable healthcare for consumers,” said the companies in their joint website promoting the merger.

Last June, a spokesperson for America’s Health Insurance Plans, the major lobbying group for the health insurance industry, told CNN/Money, “There is little evidence that shows mergers in health insurance increase costs.”

Groups representing consumers, physicians and hospitals have said the opposite: that the merger may increase the companies’ profits but will ultimately hurt patients and the medical system.

“Mergers in the health insurance industry would have an immediate and profound negative impact on the availability and affordability of health insurance for millions of consumers,” said the American Academy of Family Physicians in a letter to federal regulators summarizing many of the concerns.

An analysis by researchers at Northwestern University, the University of Pennsylvania and UCLA found that the 1999 merger of Aetna and Prudential “raised premiums by roughly 7 percent.” A subsequent study of Nevada markets affected by the merger between United Health Group and Sierra found that premiums jumped nearly 14 percent. And just last month, a study by University of California, Berkeley, researchers found that in the last few years, premiums rose faster in parts of New York where there was less insurer competition. The same study found that consolidation did not have the same effect in California, but probably because state officials drove a harder bargain with insurers.

Insurance companies’ size, say experts, tracks their penchant for using market power to raise premiums, knowing it will be difficult for consumers to find alternatives. A recent analysis published in the Journal of Technology and Science found that “the largest insurance company in each state on average increased their rates 75 percent more than smaller insurers in the same state.”

An Anthem spokesperson told IBT that the merger would “benefit consumers by accelerating the move to value-based reimbursement models, which will provide improved health outcomes for members at a lower cost — achieving savings that can also be reinvested to benefit current and future customers.”

Anthem and Cigna officials predict $2 billion in cost savings from the deal. Many academic experts say that insurers can generate such savings by using their larger market power to reduce reimbursement rates to doctors and hospitals — but they also say merged companies end up pocketing the recouped cash as profit.

“Insurance consolidation will tend to lead to lower payments to healthcare providers, but those lower payments will not be passed on to consumers,” Northwestern’s Leemore Dafny told a congressional hearing on mergers a few months after the announcement of the Anthem-Cigna transaction.

Regulators in states and at the U.S. Justice Department are now charged with reviewing the proposed Anthem-Cigna merger, to make sure it does not squelch competition and harm consumers. That evaluation is taking place in an insurance economy that has already been consolidated by two decades of mergers. A 2014 study by the Government Accountability Office found that private insurance “was concentrated among the three largest insurers in most states.” In all, the report concluded, “the three largest insurers had at least 80 percent of the total enrollment in at least 37 states.” In more than half those states, “a single insurer had more than half of the total enrollees.”

Opponents of the deal say the trend is likely to become more pronounced if Anthem is permitted to acquire Cigna.

According to a recent analysis of market data by the American Medical Association, the merger would “raise significant competitive concerns” in Ohio, California, New York and Wisconsin, and further consolidate insurance markets in 10 other states where Anthem already operates. The American Hospital Association estimates that more than 800 local markets serving 45 million people would see the companies gain market power and would subsequently “lack sufficient local competitive alternatives.” In a separate study of the proposed merger, Edmund Haislmaier of the conservative Heritage Foundation noted that the main effect of the merger would be to enhance Anthem’s dominance of employer-based health insurance plans in the 14 states where it already operates.

In a recent earnings call with investors, Anthem CEO Joseph Swedish countered the notion that the merger would reduce competition: he suggested that the merger could increase competition on health insurance exchanges in states where the company has not had a large presence, by helping Anthem move into states where it has not had a large presence.

“Cigna will help us with future expansion beyond our 14 states, so that’s a story that’s not yet told,” he said, adding that there will specifically be “potential to expand to other markets relative to the public exchanges.”

The major questions facing state insurance commissioners is not merely whether the projected levels of concentration are legally permissible, but also whether such consolidation will ultimately benefit consumers, according to attorney David Balto, a former policy director at the Federal Trade Commission and the federal Department of Justice’s antitrust division.

“Even if the Commissioner finds that a merger would not tend substantially to lessen competition, it would still be subject to disapproval if it would have other adverse effects on policyholders or the public,” he wrote in a memo distributed to state insurance regulators in 2015. That memo pointed out that in the last 15 years, state regulators have intervened in nine separate merger proposals, including moves that ended up fully blocking three mergers on the grounds that they would harm consumers.

Physicians and the groups representing them have raised some of the strongest objections to Anthem’s proposed merger with Cigna. During a California hearing about the deal, physical therapist Dennis Langton testified that patients covered by both companies had experienced delays and retroactive denials for services deemed medically necessary by doctors.

“We are dealing with two companies that have failed to administer their specialty networks in a manner beneficial to the consumers,” said Langton, who has practiced for 43 years in San Diego. “Allowing two dysfunctional programs to combine forces seems like a recipe for disaster.”

Matthew Katz of the Connecticut Medical Society told IBT that doctors in his state will see their bargaining power eroded.

“If one mega company is now 60 percent of the market but is a bad actor in that market, the patient and the physician are stuck, and the company can limit their network, tier their network and limit access to care,” he told IBT. “A physician may look at a network that is making it difficult to deliver necessary care, but when that network is 60 percent of the market, they can’t walk away from it.”

 

One Response

  1. The resemblance with the 2007 Financial Crisis is uncanny.

    Both scams rely on the fact that millions of European and Asian investors diversify their holdings as a hedge against political risks like war and terrorism, by buying shares in US companies.

    Few of those investors ever studied US constitutional law and the separation of powers doctrine.

    The Dutch or British citizen who invests in the US, thinking our laws are the mirror image of those in the EU, will make bad guesses about which legal authority, resides at what level of government.

    The 2007 Scam ran this way: Supposedly the major US banks had formed a Silicon Valley tech firm, the Mortgage Electronic Registration System (MERS), which tracked every mortgage ever issued. (REALITY CHECK: this was a horribly bad guess that cost billions of dollars in losses. Mortgages exist under State law. Whichever state the house is in, governs how the mortgage is to be paid.). Foreign investors (and many US citizens too) who didn’t know this, assumed that major banks like BofA and Lehman Bros. knew if mortgages were paid current or not…and knew if they were legally enforceable. (Actually they didn’t). Banks then bundled groups of mortgages into mortgage-backed securities–a kind of bond–and sold them on the market for Yen or Euros or Dollars. Foreign investors forked over the Yen, Euros, and Dollars, because these bonds were insured by an insurance firm–AIG–and highly-rated by 3 bond rating firms. However, AIG only sold the insurance because all three rating firms liked the bonds. And on closer inspection, the rating firms only rated the bonds because they appeared to be insured. When a few of those mortgages defaulted, lawyers for the bond buyers discovered that many of the mortgages were not enforceable. (An “enforceable” mortgage, means that if the payments stop getting made, the lender can sue in court to get the house back, and re-sell it to somebody who WILL make the payments on it. Unenforceable means that if the people stop making payments, and they’re smart enough to figure the scam out, they pay nothing but keep the house.). So, what basically happened is that banks made a lot of bad loans to deadbeats, then sold the loans to people who wanted an investment. Banks got paid. Investors got ripped off.

    Jumping ahead a decade, the present scam could work similarly.

    A lot of people don’t know which courts have jurisdiction of what set of healthcare problems.

    If the CIGNA-Anthem entity refuses to obey the law, and does not deliver actual health care to people, where do we sue for nonfeasance of duty? State laws regulate doctors. The federal Obamacare law regulates what insurers must cover. Nobody regulates 100% of the system. Therefore, all politicians can be equally irresponsible over the quality and quantity of care that is delivered.

    It could get very ugly, very fast.

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