Photo by Stephen George
Photo by Stephen George

A new open letter the American Hospital Association sent to two federal agencies sounds a loud warning about several potential adverse affects stemming from a Humana/Aetna merger. The letter to the U.S. Department of Justice Antitrust Division and the Department of Health and Human Services went public Sept. 1.

This is the second such letter written by the AHA warning of the ill-impacts of a more consolidated health insurance field. In early August, the AHA issued a similar letter warning of the potential negative consequences stemming from a merger of Cigna and Anthem. When that letter was released, the AHA said a second letter about Aetna and Humana was forthcoming.

The AHA represents 5,000 member hospitals, health systems and related health care organizations. It also has 43,000 individual members.

While the AHA stops just shy of explicitly saying the Aetna/Humana deal needs to be ended, that clearly is the subtext of the letter and is expressed in multiple ways.

“The proposed Aetna/Humana merger threatens substantial and irreversible harm to competition in critically important markets for Medicare Advantage plans across the country,” the AHA wrote.

The AHA notes there are more than 2.7 million seniors enrolled in Medicare Advantage plans operated by Aetna and Humana. These members are located in over 1,000 markets — markets that would become extremely concentrated at the conclusion of the merger.

This concentration would offset the benefits Medicare Advantage offers when compared to traditional Medicare, according to the AHA; such advantages include lower out-of-pocket costs and richer benefits.

“Yet, some of the benefits Medicare Advantage plans offer may be eroding,” the AHA wrote, due to the lack of robust competition among Medicare Advantage plans. Quoting a recent Kaiser Family Foundation report, the AHA said the Medicare Advantage markets are “highly concentrated among large firms.” An Aetna/Humana merger would concentrate these markets even more, according to the AHA: “The resulting loss of competition will harm seniors by making it considerably more difficult for them to obtain affordable, comprehensive health care coverage.”

The AHA also said the claims that the combined firms would lower prices for consumers lacked merit. This is because the newly combined firm would become a “monopsony,” which is when buyers have enormous power against suppliers. This harms consumers by eventually driving down the numbers of suppliers below competitive levels.

Further, the AHA warned this deal will eliminate what would have been future competition between Humana and Aetna. Aetna, for example, had told investors it planned to continue to grow its Medicare Advantage business, presumably competing, in some cases, with Humana. But if the two firms merge, the possibility of this future competition would be eliminated.

The AHA cited past instances where the DOJ took legal action to keep competition from being reduced in the health care industry, including a past case involving Humana.

In 2008, after UnitedHealth said it wanted to buy Sierra Health Services, the Department of Justice sued in order to preserve competition for Medicare Advantage plans in Las Vegas. The DOJ settled the complaint by requiring the merged company to preserve competition for Medicare Advantage plans in Las Vegas by divesting individual Medicare Advantage customers there.

In 2012, the DOJ sued to block Humana’s proposed acquisition of Arcadian Management Services, with the federal agency saying the deal would lessen competition among Medicare Advantage plans, and eliminate competition between Humana and Arcadian in 45 markets. Once again, the complaint was resolved when the companies agreed to divest Medicare Advantage business in each relevant market.

But the AHA argues against the idea that such divestitures would be enough to ameliorate anticompetitive concerns should the firms merge. For starters, this deal is so big that the amount of divestitures would be multiples larger than those cited above. The merged firms would substantially lessen competition in 1,083 counties across 38 states, covering 2.7 million Aetna and Humana members.

“Even if it were feasible, it would be a staggering task to develop, implement and supervise a divestiture package that would remedy harm to competition over such a broad area,” the AHA wrote of the Humana/Aetna deal. “The (DOJ) has never before been faced with a merger that threatens to destroy competition in the Medicare Advantage market to the extent promised by this transaction.”

IL contacted Humana spokesman Tom Noland for additional comment, but he has not yet responded.

David Serchuk
David Serchuk is a staff writer at Insider Louisville. He is a former editor at Forbes.com, and an ex-reporter at Forbes magazine. He's written for NPR, CNBC.com, New York, Pittsburgh, Louisville and other publications named for places. He enjoys writing about business, music and other things as well.