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​How will health insurer mergers hit Obamacare?

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Investors got an update last week on the progress of two giant health insurer mergers that, if regulators approve, will shrink the number of major insurers in the U.S. from five to three. On Friday Cigna (CI), the nation's fourth-largest health insurance company, which agreed to be acquired by Anthem (ANTM), the No. 2 health insurer, announced that the deal, scheduled to close by the end of 2016, may be delayed into 2017.

"In light of the complexity of the regulatory process and the dynamic environment, it is possible that such approvals may not be obtained in 2016," Cigna said in its first-quarter financial filing last week.

Whether the Anthem-Cigna delay means the deal hit regulatory troubles is anyone's guess. It's no secret the Justice Department has been closely scrutinizing this and other deals because of antitrust issues.

During Aetna's (AET) first-quarter earnings call late last month, CEO Mark Bertolini said the company is on track to close its deal with Humana (HUM) in the second half of 2016. Aetna is the country's third-largest insurer, and Humana is the fifth largest. Humana has indicated that it's looking to consolidate or retreat from some of its Affordable Care Act exchange business, although it's a very small player in that arena, said Cynthia Cox, associate director of the program for the study of health reform and private insurance at the Henry J. Kaiser Family Foundation.

UnitedHealth wants to pull out of Obamacare 01:22

Worries about consolidation's effect on the Obamacare marketplace come on top of the news, also last month, that UnitedHealth (UNH) is pulling out of all but a handful of exchanges. It, too, is a relatively small player in the marketplaces, but the move leaves consumers in some smaller areas with only one or two insurer choices.

Before the news about the possible delay in its proposed merger with Cigna, Anthem said in the company's first-quarter earnings call that it is sticking with the 14 state health exchanges it currently is in, noting that it expects to make a small profit on this business next year. An Anthem spokesman later said the insurer is even considering expanding its exchange business.

The mega-insurance deals come in the wake of at least a decade's worth of consolidation in the other end of the business -- hospitals and health care providers. (Fewer than 20 percent of doctors practice on their own these days.) Large provider organizations have more power to negotiate better reimbursement rates from insurers.

In turn, the insurance companies say they must now also consolidate to increase their negotiating power with providers, explained Richard Scheffler, professor of health economics and public policy at the University of California, Berkeley.

Scheffler is the co-author of a new study published in the May Issue of Health Affairs that looks at the impacts of market concentration on ACA exchange premiums. His research and other studies show that consolidation among health care providers does, as expected, raise health care prices. Research also indicates that consolidation among insurers does help payers negotiate better rates with providers. "But there is no real evidence that this is passed onto consumers by way of lower premiums," said Scheffler.

Year three of Obamacare sees spiked premiums for many 02:09

But according to the research, insurers do charge less when the right regulations are in place. The study looks closely at the ACA marketplaces in California and New York, both states with plenty of competing insurers vying for exchange business. New York state chose to accept all insurers that sought to participate in its exchange. California by contrast, opted to select a limited number of insurers to participate in the plan. (The ACA allows either course of action.)

For companies to be chosen to participate in California's exchange for a guaranteed time period of three years, the state was able to encourage plans to keep premiums low. The result: California saw lower premiums than New York, even in areas with less competition.

The reality is, however, that both states have much more competitive landscapes than many other states and counties, where exchanges have far fewer choices. "The interesting thing I've come to appreciate is that the health insurance marketplaces are pretty local creatures," said Michael A. Morrisey, head of the Department of Health Policy Management at the Texas A&M Health Science Center School of Public Health. "It all depends on the networks you can put together."

Consolidation isn't the only reason experts like Morrisey expect to see continued increases in premiums in 2017. Plain economics are also to blame. This is new territory for insurers, and those that came from an employer-sponsored background may not have been ready for the higher utilization rates seen among customers on the exchanges, explained Morrisey. Lots of insurers are still figuring out how to set prices in this new market, he added.

If the experts are correct and premiums (both on the exchanges and off) increase, at least the damage will be limited, said Cox. Under the ACA, state regulators must review premium increases of more than 10 percent. Plus, the 80/20 rule requires that insurers use 80 percent of premiums to pay health care claims (85 percent for insurers selling to large groups). Said Cox: "Those rules should help mitigate some of the potential effects of consolidation."

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