What's bad for health insurers may be good for consumers

After much speculation, it's official: The U.S. Department of Justice announced last Thursday that it is suing to block health insurer Anthem's proposed $48 billion acquisition of Cigna and Aetna's proposed $34 billion acquisition of Humana. The two blockbuster mergers announced last year would shrink the number of major U.S. insurers from five to three.

The Justice Department said the corporate combos would "harm seniors, working families and individuals, employers and doctors and other healthcare providers by limiting price competition, reducing benefits, decreasing incentives to provide innovative wellness programs and lowering the quality of care."

"Our actions seek to preserve competition that keeps premiums down and drives insurers to collaborate with doctors and hospitals to provide better healthcare for all Americans," Attorney General Loretta E. Lynch said in a statement.

Reaction was swift. Consumer advocates such as Families USA and Consumers Union, which helped support the efforts toward a government suit, applauded the move. "Heavy concentration of a tiny number of insurers tends to be harmful to consumers," said Ron Pollack, executive director of Families USA.

"There are very few markets where consumers are exploited as much as health care," added David A. Balto, a lawyer and former antitrust official who was involved in the Justice Department effort. "This action will prevent this from getting worse."

Meanwhile, Aetna and Anthem both defended their proposed deals saying consolidation would help provide the most efficient health care to consumers. Both companies said they would challenge the DOL's lawsuit.

An all-out legal fight would be unusual, Pollack noted. "When [the Justice Department] decides to file litigation it often means the parties have to rethink if it's worth going through the effort," he said. "I wouldn't be surprised if these merger attempts are going to end pretty soon."

What's more, the Justice Department has been aggressive in recent years to block deals in several industries that it believes reduce competition. Halliburton and Electrolux both abandoned merger deals last year after the U.S. sued, for instance.

If the health insurance deals are successfully blocked, consumers won't necessarily feel the effects directly. It's more a matter of consumers avoiding potential problems that may have come from the mergers. Here's how it breaks down.

Premiums. With soaring medical and pharmaceutical costs -- and insurers' efforts to push more costs onto consumers, -- rising premiums are inevitable in any environment. However, with the proposed consolidation, there would be little competitive incentive for the remaining Big Three to keep in check the premiums for all types of insurance plans. Although insurers argue that consolidation helps them negotiate better prices with hospitals and other health care providers -- which are also consolidating -- we haven't always seen those savings passed onto consumers, said Adam Beck, professor of health insurance at The American College. He points to the Aetna-Prudential merger in 1999: "Research shows that eight years later, as a direct result of the merger, physician pay dropped 3 percent and premiums increased 7 percent," Beck said.

Obamacare exchanges. The government has repeatedly said that for the Affordable Care Act exchanges to work well, consumers need a range of choices to pick from in their area. The government worried that consolidation, especially among large insurers, would reduce the number of participants in the exchanges. While that may be true, consumers are still seeing retreats from the exchanges on the part of major insurers, with or without the deals. UnitedHealthcare, the nation's largest insurer, announced earlier this year it would exit its exchange business in all but a few markets. On the same day as the Justice Department announcement, Humana reported it will leave eight of the 19 exchange markets in which it has sold plans -- the company now expects to offer exchange plans in 156 counties across 11 states, compared to 1,351 counties in 19 states. Some large insurers are realizing they cannot profit from exchange business so these cutbacks are likely to continue despite the Justice Department's action. It's important to remember that most exchange insurers are smaller, regional players.

Employer-sponsored plans. Employees of large companies may have the most to gain from the blocked mergers, explained Gary Claxton, vice president of Kaiser Family Foundation. There are a lot of regional and small insurers that offer employer-sponsored insurance but only the big insurers have large national networks the likes of which giant corporations usually hire. The mergers would mean these employers would have even fewer choices and that would likely translate into fewer plan choices for employees.

The Associated Press contributed to this report