Anthem says industry flush with competition, but local experts have doubts

Anthem CEO Joe Swedish last week gave his most detailed defense yet that his company’s pending $54 billion purchase of Cigna Corp. wouldn’t harm competition in health care markets.

But executives at some of Indiana’s most prominent health care and health insurance institutions expressed skepticism last week during the IBJ Health Care Power Breakfast.

“Health insurance is flush with competition,” Swedish said Sept. 22 in remarks to a U.S. Senate subcommittee on antitrust, competition and consumer rights. He added, “To characterize Anthem and Cigna as two of the five ‘national insurers’ is inaccurate and an oversimplification of the role we play in the varied communities we serve across the country.”

Swedish noted that 70 new health insurers popped up around the country this year—a 26 percent increase. Swedish also emphasized that Anthem and Cigna have very little overlap in their businesses.

He noted that Anthem’s individual business is concentrated in just 14 states while Cigna’s is concentrated in just 12. He noted that Cigna does not market to small employers with 2 to 50 workers, while Anthem derives a large part of its business from those customers

For seniors on Medicare, Anthem and Cigna would represent just 6 percent of the nationwide market among private Medicare Advantage plans, Swedish noted, citing a recent analysis by the Kaiser Family Foundation.

But the trouble could be among large employers, noted Jim Parker, president of Indiana University Health Plans, the health insurance arm of the Indianapolis-based IU Health hospital system.

Large employers typically insure themselves and then hire Anthem, Cigna or another company to negotiate prices with hospitals and doctors and to process medical bills. In Indiana, Anthem and Cigna are the two biggest players in these kinds of contracts with large employers.

“If you're a large self-funded employer in Indiana, you're going to have less competitive choice tomorrow than you will today,” Parker said, citing analysis by the American Medical Association that showed that the Anthem-Cigna deal would reduce competition in Indiana market by 48 percent.

Health insurers have taken issue with the AMA’s analysis. The industry group America’s Health Insurance Plan previously analyzed the AMA’s studies and found that they “fail basic checks of accuracy and reliability" by excluding some self-funded employer health plans and showing different data than submitted by insurers to the National Association of Insurance Commissioners.

“Once again, the AMA is recycling misleading data that does not accurately reflect the market today. This latest analysis derives from the same fatally flawed study that has consistently been debunked by leading health care economists,” said AHIP spokeswoman Clare Krusing after the AMA’s study was released this month.  She added that “research clearly demonstrates that provider consolidation—not concentration of health plan markets—is driving up health care costs for consumers and employers."

But Parker noted that fewer options means less willingness by Anthem to flex its offerings to meet employers’ needs.

“I think we should all feel strongly about the need for competition among benefit providers,” said Parker, who was chief of staff to Angela Braly, who preceded Swedish as CEO of Anthem, when the company was called WellPoint Inc.

Swedish, perhaps cognizant of such concerns, devoted the largest segment of his comments on competition to large employers. He said there are 130 health benefits companies serving large employers, even before counting those focused exclusively on pharmacy or behavioral health benefits.

He also noted that more large employers are using private exchanges, many of which allow the employees of companies to select from a menu of health plans offered by competing companies.

Nearly 30 percent of the quotes for new 2016 business with large employers are being funneled through private exchanges, Swedish said, and nearly a quarter of Cigna’s 2016 business with large employers is expected to flow through private exchanges.

“Large employers also have numerous choices and the ability to leverage additional competitive alternatives,” Swedish said.

Zeke Turner, CEO of health care real estate developer Mainstreet, blamed the insurance consolidation for a furious pace of mergers among hospitals. According to the Wall Street Journal, there have been 71 mergers among hospitals so far this year, the fastest pace since 1999.

The Affordable Care Act "actually has a very good goal: It's to improve overall health, especially to specific populations, and to do it at a lower per capita dollar cost,” Turner said.

“Unfortunately,” he added, “what we're seeing in terms of consolidation on the hospital side and the insurance side is not accomplishing that.”

Cheryl Harmon, chief financial officer of St. Vincent Health, said she doubted the Anthem-Cigna merger is the key reason health care providers are consolidating, but it could lead to an increase in insurance premiums.

“The consolidation and the acquisition of Cigna could create, I think, in the end game an increase in premiums for the folks in the market, which I think is the biggest concern that's out there right now,” she said.

Anthem officials have argued that their merger with Cigna should save money by stripping out redundant costs. Critics of the deal, however, say a combined Anthem-Cigna would have less reason to pass on those savings to consumers in the form of lower premiums.