    [Senate Hearing 114-912]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-912

                         EXAMINING CONSOLIDATION IN THE
                         HEALTH INSURANCE INDUSTRY AND
                            ITS IMPACT ON CONSUMERS

    =======================================================================

                                    HEARING

                                   before the

                           SUBCOMMITTEE ON ANTITRUST,
                             COMPETITION POLICY AND
                                CONSUMER RIGHTS

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               SEPTEMBER 22, 2015

                                   __________

                               Serial No. J-114-12

                                   __________

             Printed for the use of the Committee on the Judiciary

                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                            www.judiciary.senate.gov
                                www.govinfo.gov

                                   ______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    53-624                    WASHINGTON : 2025

                           COMMITTEE ON THE JUDICIARY

                      CHARLES E. GRASSLEY, Iowa, Chairman

    ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont, Ranking
    JEFF SESSIONS, Alabama                   Member
    LINDSEY O. GRAHAM, South Carolina    DIANNE FEINSTEIN, California
    JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
    MICHAEL S. LEE, Utah                 RICHARD J. DURBIN, Illinois
    TED CRUZ, Texas                      SHELDON WHITEHOUSE, Rhode Island
    JEFF FLAKE, Arizona                  AMY KLOBUCHAR, Minnesota
    DAVID VITTER, Louisiana              AL FRANKEN, Minnesota
    DAVID PERDUE, Georgia                CHRISTOPHER A. COONS, Delaware
    THOM TILLIS, North Carolina          RICHARD BLUMENTHAL, Connecticut

                Kolan L. Davis, Chief Counsel and Staff Director
          Kristine Lucius, Democratic Chief Counsel and Staff Director

            .........................................................

                     SUBCOMMITTEE ON ANTITRUST, COMPETITION
                           POLICY AND CONSUMER RIGHTS

                         MICHAEL S. LEE, Utah, Chairman

    DAVID PERDUE, Georgia                AMY KLOBUCHAR, Minnesota, Ranking
    THOM TILLIS, North Carolina              Member
    CHARLES E. GRASSLEY, Iowa            CHRISTOPHER A. COONS, Delaware
    ORRIN G. HATCH, Utah                 AL FRANKEN, Minnesota
                                         RICHARD BLUMENTHAL, Connecticut

                      Matt Owen, Republican Chief Counsel
                   Kirstin Dunham, Democratic General Counsel

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page

    Lee, Hon. Michael S..............................................     1
        prepared statement...........................................   140
    Klobuchar, Hon. Amy..............................................     4
    Grassley, Hon. Charles E
        prepared statement...........................................   138
    Leahy, Hon. Patrick J.
        prepared statement...........................................   139

                                   WITNESSES

    Bertolini, Mark T................................................     7
        Prepared statement...........................................    38
        Responses to written questions...............................   146

    Dafny, Leemore S.................................................    12
        Prepared statement...........................................    69
        Questions submitted with no response returned................   145

    Ginsburg, Paul B.................................................    10
        Prepared statement...........................................    61
        Responses to written questions...............................   168

    Pollack, Richard.................................................    14
        Prepared statement...........................................    86
        Responses to written questions...............................   172

    Slover, George...................................................    15
        Prepared statement...........................................   130
        Responses to written questions...............................   180

    Swedish, Joseph..................................................     9
        Prepared statement...........................................    49
        Responses to written questions...............................   184

                                    APPENDIX

    Items submitted for the record...................................    37

                         EXAMINING CONSOLIDATION IN THE
                         HEALTH INSURANCE INDUSTRY AND
                            ITS IMPACT ON CONSUMERS
                            ITS IMPACT ON CONSUMERS

                                  ----------

                          TUESDAY, SEPTEMBER 22, 2015

                                   United State Senate,
                         Subcommittee on Antitrust, Competition
                                   Policy, and Consumer Rights,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 10 a.m., in
    Room 226, Dirksen Senate Office Building, Hon. Michael S. Lee,
    Chairman of the Subcommittee, presiding.
        Present: Senators Lee [presiding], Tillis, Grassley, Hatch,
    Klobuchar, Coons, Franken, and Blumenthal.

               OPENING STATEMENT OF HON. MICHAEL S. LEE,

                 A U.S. SENATOR FROM THE STATE OF UTAH

        Chairman Lee. Welcome to this hearing of the Subcommittee
    on Antitrust, Competition Policy, and Consumer Rights. Before
    we start, I would like to thank Ranking Member Klobuchar and
    her staff for their assistance in preparing for this hearing
    today. I would also like to thank the Chairman of the Full
    Committee, Senator Grassley, for his support of the hearing.
        A few housekeeping matters that I would like to cover
    before we begin. After I, and then Senator Klobuchar, give some
    opening remarks about this hearing, we are going to hear from
    our panel of witnesses whom I will introduce in a few minutes,
    and then we will have 5-minute question rounds. I should also
    note that we are expecting an important vote on the floor this
    morning, and so I and other Members will likely need to step
    out briefly to participate. If necessary, we may briefly pause
    the hearing proceedings, although sometimes that does not
    become necessary, depending on the order in which people are
    asking questions.
        We are here, as you know, to discuss the proposed mergers
    between four of the Nation's five largest health insurance
    companies. In early July of this year, Aetna announced that it
    had reached a deal to purchase rival Humana for $37 billion. A
    few weeks later, Anthem announced its own deal to purchase
    Cigna for $54 billion. The Department of Justice is currently
    reviewing both of these proposed transactions, and should the
    Department proceed without any objection or substantial
    modification to health insurance, industry's so-called Big Five
    will be reduced to the Big Three--UnitedHealthcare, Anthem, and
    Aetna--at the end of that process.
        As with any merger between two major competitors, each of
    these acquisitions raises the question of whether the merging
    businesses' product offerings overlap in any geographic market.
    The relevant antitrust inquiry is, of course, whether the
    combination will lead to a market concentration that may
    substantially lessen competition.
        These transactions and their concurrent review also raise
    questions about the broader issue of consolidation in our
    Nation's health insurance industry. It is my hope that our
    discussions today will assist the public and assist lawmakers
    in understanding what is causing the trend toward
    consolidation, as well as how it may affect consumers. As we
    have seen since the passage of the Patient Protection and
    Affordable Care Act, sudden and drastic changes to the health
    care markets can lead to financial uncertainty and increased
    strain on consumers and on their families.
        While vibrant competition in every industry is important to
    our economy, consumers and policymakers pay special attention
    whenever health care is involved, as it is here. Health care
    markets are distinguished from those for other goods and
    services by their complexity, financial incentives, and
    inelastic demand. Health-related goods and services reach
    consumers through a byzantine labyrinth of manufacturers,
    wholesalers, pharmacy benefit managers, insurance companies and
    other third-party payers, providers, pharmacies, State and
    Federal Government agencies, and sometimes employers. In many
    instances, those prescribing care, those receiving care, and
    those paying for care are all different entities. But despite
    these complexities and despite the often high costs for health
    care, everyone will at some point require it. Of course, health
    care also touches on some of the most sensitive and life-
    changing decisions made by consumers, decisions that have a
    lasting impact on their personal as well as on their economic
    well-being.
        That brings us to the present transactions. The first to be
    announced was that between Aetna and Humana, the third and
    fifth largest national health insurers, respectively. Aetna
    serves an estimated 46 million people globally, offering a
    variety of health insurance products, including dental, vision,
    Medicaid, Medicare Supplemental, Medicare Advantage, and
    concentrations--commercial policies. Aetna's primary focus is
    in commercial health insurance, particularly national accounts
    and large multi-site self-insured employers. Humana has over 14
    million members and product offerings focusing on Medicare,
    with at least one Medicare product in every State in the Union.
    Humana is the second largest Medicare Advantage provider just
    behind UnitedHealthcare.
        The second transaction, between Anthem and Cigna, proposes
    to combine the second and fourth largest national health
    insurers, respectively. Anthem is the largest member of the
    Blue Cross and Blue Shield Association, operating under that
    brand in 14 States. Anthem has over 38 million health insurance
    customers spread across its small-group, Medicare, Medicaid,
    individual, and commercial products. Cigna has over 14 million
    covered lives and focuses on commercial health insurance
    offerings.
        Each of these deals is in and of itself incredibly complex
    and raises its own set of unique concerns. Industry observers
    have noted that the primary area of overlap between Aetna and
    Humana is in their Medicare Advantage businesses. The American
    Hospital Association identified nearly a thousand counties in
    which the post-acquisition concentration level in the market
    for Medicare Advantage raises strong competitive concerns.
    Others, however, question both the accuracy of the data cited
    and the interpretation of that data. While some are concerned
    the deal will lead to higher prices and fewer choices for
    consumers, the companies have identified $1.25 billion in
    potential efficiencies. The Anthem-Cigna merger is viewed to
    involve overlap primarily in the commercial health insurance
    market. The American Hospital Association claims the deal may
    result in concerning concentration levels for commercial health
    insurance products in up to 807 metropolitan areas. The
    insurance companies again strongly dispute these numbers,
    arguing that if they fail to separate out different insurance
    products that--that those conclusions fail to separate out
    different insurance products that are in different product
    markets. Anthem and Cigna believe they are joining
    complementary businesses in a way that will allow them to lower
    costs and improve quality for consumers.
        Anthem's acquisition of Cigna also raises questions
    regarding how Cigna will be integrated into the Blue Cross Blue
    Shield system. Anthem's membership agreement in the association
    places limits on how much of their business may be conducted
    outside the Blue Cross and Blue Shield brands. It is possible
    that Cigna's ability to compete post-acquisition may be
    constrained by Anthem's membership in the Blue Cross and Blue
    Shield Association. For its part, Anthem believes that the
    addition of Cigna's members will not cause them to run into any
    limits imposed by the association's membership agreement.
        In addition, there is the question of how these mergers may
    effect nascent forms of competition in the health insurance
    industry, specifically the trend toward value-based
    reimbursement and outcome-based treatment models. These
    alternative approaches to health care seek to improve care and
    lower costs by focusing on patient outcomes and overall health,
    particularly through preventative care, rather than simply
    paying for services on a fee-basis. As the marketplace evolves
    in response to consumer demand and Government policies, it will
    be important to ensure that consumers are benefiting from
    vigorous competition and wide choice rather than being locked
    into the offerings of just a few dominant companies within the
    industry.
        Finally, we cannot ignore the far-reaching effect that the
    Affordable Care Act and the effect it has had on the health
    insurance marketplace in America. While I would like to
    emphasize that this is not a hearing on Obamacare, a discussion
    of its role in current industry consolidation is unavoidable
    given the way the Act has transformed the structure and the
    provision of health insurance in America. It is important for
    us to ask how it may be affecting competition in these markets.
        We can see, these issues that are raised by these proposed
    transactions and the complexities of the health care space
    provide ample topics for our discussion today. While the final
    determination regarding the competitive impact of the deals
    will, of course, be made by the Department of Justice, I
    believe we can make valuable contributions to the conversation
    today by closely examining any concerns they raise and by
    looking at what other forces or market realities may be driving
    consolidation in the health insurance industry.
        Particularly at a time when the debate over national health
    care policy continues with great fervor, and the health care
    marketplace is rapidly evolving to meet the demands of the 21st
    century, it is essential that lawmakers and regulators in
    Washington pay close attention to the impact of our actions on
    competition and the free market. I hope that we can make
    strides to that end today, and I look forward to hearing and
    engaging with the testimony of our highly qualified panel of
    witnesses.
        Senator Klobuchar.

                OPENING STATEMENT OF HON. AMY KLOBUCHAR,

               A U.S. SENATOR FROM THE STATE OF MINNESOTA

        Senator Klobuchar. Thank you very much, Chairman Lee. Thank
    you for holding this hearing. Thank you to all of our
    witnesses. This is an important hearing to examine the
    consolidation in the health insurance industry, and I want to
    welcome all of our witnesses. I think we all know that the cost
    and the quality of health insurance affects all of us.
        As a Nation, we value competition. The Supreme Court has
    called the Sherman Act the ``Magna Carta of free enterprise.''
    As a Nation, we have developed a broad consensus that
    competition leads to lower prices and higher quality. By
    protecting competition, the antitrust law delivers those
    benefits to American consumers. This is true across industries.
        For a long time, however, people saw the health care
    industry differently. In the 1970s, some worried that
    competition would lead to a medical arms race where providers
    would unnecessarily duplicate services and increase costs. More
    recently, we have come to understand that competition at all
    levels of health care delivery systems benefits consumers.
        Consequently, the proposed merger of four of the five
    largest health insurance companies could change the industry,
    and its impact on consumers must be carefully scrutinized.
    Together these four insurers cover, as the Chair has noted,
    over 90 million people, almost 3 out of 10 Americans. We spent
    over $960 million on health insurance in 2013, and cost-
    effective health insurance, as we all know, is critical for the
    access that Americans need for quality health care.
        There are some who are convinced that if this merger is
    approved, consumers will pay more for insurance, receive fewer
    benefits, and have less time with their doctors or other health
    care professionals. Others with equal fervor believe that
    competition will remain vigorous because many alternatives will
    continue to exist in the market and that each combination will
    help improve health care.
        For me, I think we need to explore two key questions:
    first, the effect of these mergers on consumers; and, second,
    the impact on the integrity of our health care system.
        I want to make sure that these deals do not harm consumers
    by increasing premiums or reducing benefits. Also, we need to
    consider whether these mergers will enable insurers to gain
    undue advantage in dealing with health providers that could
    reduce the quality of care.
        Equally important, we want to consider whether these
    transactions could enhance competition. Here the questions are
    broader. The health care industry is undergoing a significant
    transition as we move toward more coordinated care and
    rewarding outcomes instead of paying for procedures. Will these
    mergers support or impede the goal of coordinated, outcome-
    based care?
        The Antitrust Division of the Department of Justice has
    significant experience reviewing health insurance mergers. They
    have typically analyzed these deals by looking at how the
    merger would affect individuals, small employers, large
    employers, and Medicare Advantage plans. They have generally
    analyzed health insurance markets as local. An insurer must
    offer access to providers close to where the consumer works or
    lives to be viable. Typically, the Antitrust Division has found
    entry to be difficult, citing the cost of entry into a
    geographic area, the time it would take, and the barriers posed
    by the reputation of the merged entity and the products that it
    provides.
        At the same time, significant changes are occurring. We now
    have public insurance exchanges that empower individuals. Some
    companies have adopted that idea and provide private exchanges
    for their retirees or employees where the consumer chooses from
    a menu of potential plans. Certain provider groups have begun
    offering their own insurance plans. Typically, we weigh the
    potential for harm from a merger against likely benefits. In
    other words, will the merger lower costs or improve quality in
    a way that is unlikely to occur without the merger? Equally
    important, will these benefits flow to consumers?
        Mr. Chairman, I will be interested in hearing from our
    panel on how they approach these issues. I am personally very
    interested in another issue related to health care, and that
    is, prescription drug prices, and I hope it is something we
    will also consider in the future. Senator Grassley and I just
    introduced or reintroduced our pay-for-delay bill with regard
    to generic and pharmaceutical deals that we think harm
    consumers. Second, I have a bill with Senator McCain on
    allowing reimportation of drugs from Canada, and then a bill
    that allows for negotiation under Medicaid Part D. While we are
    focused today on the health insurance issues, I think we all
    know there are other issues related to costs as well in this
    industry that must be examined as we are seeing some greatly
    escalating costs in the pharmaceutical market especially.
        Thank you, Mr. Chairman.
        Chairman Lee. Thank you. I am now going to introduce each
    of our witnesses before we swear them in and hear from each of
    them.
        Mark Bertolini is chairman and CEO of Aetna. He joined
    Aetna in 2003, and has served in various capacities prior to
    assuming the role of CEO in 2010, and as chairman in 2011. Mr.
    Bertolini holds an undergraduate degree in business
    administration and finance from Wayne State University and an
    MBA in finance from Cornell.
        Joseph Swedish is the president and CEO of Anthem. He
    joined Anthem in March 2013. Mr. Swedish's more than 40 years
    of health care experience include 25 years as CEO for several
    major hospital and health care systems. Mr. Swedish received
    his bachelor's degree from the University of North Carolina at
    Charlotte and his master's degree in health administration from
    Duke University.
        Dr. Paul Ginsburg is the Norman Topping Chair in Medicine
    and Public Policy at the University of Southern California,
    where he is affiliated with the Schaeffer Center for Health
    Policy and Economics. Continuing to be based in the Washington,
    DC area, he teaches graduate health administration courses and
    conducts health policy research. Until the end of 2013, he was
    president of the Center for Studying Health System Change,
    which he founded in 1995. Dr. Ginsburg served as the founding
    executive director of the Physician Payment Review Commission,
    now the Medicare Payment Advisory Commission, and as Deputy
    Assistant Director at the Congressional Budget Office. He
    earned his doctorate in economics from Harvard University.
        Leemore Dafny is professor of strategy, director of health
    enterprise management, and the Herman Smith Research Professor
    in Hospital and Health Services at the Kellogg School of
    Management. Her research examines competitive interactions
    among payers and providers of health care services and the
    intersection of industry and public policy. Dr. Dafny is a
    graduate of Harvard College and earned a Ph.D. in economics
    from MIT. She is a research associate at the National Bureau of
    Economic Research, editor of an international journal of health
    economics and management, and a board member of the American
    Society of Health Economists and the Health Care Cost
    Institute. In 2012 to 2013, Dr. Dafny served as Deputy Director
    for Health Care and Antitrust in the Bureau of Economics at the
    Federal Trade Commission in Washington. She is a current member
    of the panel of health advisers for the Congressional Budget
    Office.
        Rick Pollack became president and CEO of the American
    Hospital Association on September 1, 2015, after serving AHA in
    various roles over the last 33 years. Rick holds a bachelor's
    degree in political science and communications from the State
    University of New York at Cortland. He also earned a master's
    degree in public administration from American University.
        George Slover is senior policy counsel in the Washington
    office of Consumers Union, the public policy and advisory
    division of Consumer Reports. He previously worked at the
    Justice Department's Antitrust Division and at the House
    Judiciary Committee where he was lead antitrust counsel and
    later chief legislative counsel and parliamentarian. He is on
    the advisory board of the American Antitrust Institute, is an
    elected member of the American Law Institute, and currently
    serves as co-chair of the DC Bar's Antitrust and Consumer Law
    Section. He holds a J.D. from the University of Texas Law
    School and a master of public affairs from the LBJ School.
        I would ask each of our witnesses to stand and be sworn. Do
    you affirm that the testimony you are about to give before the
    Committee will be the truth, the whole truth, and nothing but
    the truth?
        Mr. Bertolini. I do.
        Mr. Swedish. I do.
        Dr. Ginsburg. I do.
        Dr. Dafny. I do.
        Mr. Pollack. I do.
        Mr. Slover. I do.
        [Witnesses are sworn in.]
        Chairman Lee. Okay. We will now hear brief remarks from
    each of our witnesses. We will start with Mr. Bertolini and
    head down this side until we get through Mr. Slover. Mr.
    Bertolini.

                STATEMENT OF MARK T. BERTOLINI, CHAIRMAN

               AND CHIEF EXECUTIVE OFFICER, AETNA, INC.,

                         HARTFORD, CONNECTICUT

        Mr. Bertolini. Good morning, Chairman Lee, Ranking Member
    Klobuchar, and Members of the Subcommittee. My name is Mark
    Bertolini. I am the 14th chairman and CEO of Aetna, which was
    founded in 1853 in Hartford, Connecticut. I thank you for
    having me here today to discuss our acquisition of Humana.
        We are at a time of unprecedented change in our country as
    we look at how health care is rendered, how much it costs, and
    what the outcomes are around health care. It is our view that
    we are--it is time for a change. Payment reform is on the
    forefront, expansion of coverage, every American should have
    health care coverage. Aetna was one of the first companies in
    2005 to call for guaranteed issue and an individual mandate for
    health care coverage.
        What I would like to talk about today is why the Humana
    acquisition is important to furthering our evolution as a
    health care company and as a health care system in the United
    States, focused on providing the highest quality available, the
    best and most affordable coverage available for all Americans.
        After the acquisition, Aetna will have a product portfolio
    balanced more evenly between commercial and Government
    products, such as Medicare and Medicaid. Today the market
    competes on price and choice of doctor, and this will not
    change. To win in the market, we believe consumers should also
    be able to pick products that are focused on improving the
    health of the member.
        The CDC has a term called ``Healthy Days,'' and it is a
    simple survey that an individual takes to determine if they are
    having a healthy day. Both companies see this as an important
    metric. We both are committed to offer products and services
    that will help improve the number of healthy days our members
    can enjoy each year.
        I realize the Committee's purview is about competition and
    consumer choice, and while you are no doubt concerned about
    health, let me address the competition and choice issues
    directly.
        First, it is important to point out that of the 54 million
    beneficiaries in Medicare today, 37 million, or 68 percent,
    receive their care through Medicare fee-for-service, while the
    remaining 17 million, or one-third, get their care through
    Medicare Advantage, or MA, the private Medicare option
    delivered through health plans.
        Post-acquisition, we believe that robust choice and
    competition will remain in the Medicare market. There are 143
    health care companies offering MA plans, with new entrants
    coming into MA every year. Twenty-eight new health plans have
    joined in the last 3 years, of which 15 are owned by providers.
    All health care is local, and today in over 3,200 counties
    across the country 3,100 offer an MA coverage.
        Beneficiaries have an average of 18 MA private plans to
    choose from, and even in nonmetro or more rural areas, there is
    an average of 10 plan choices to choose from.
        After the transaction, only 8 percent of Medicare
    beneficiaries will receive their health benefits from Humana or
    Aetna, meaning that 92 percent of all beneficiaries will
    receive their health plan benefits from either Medicare fee-
    for-service or other MA plans.
        On the commercial side of the market, Humana represents
    less than 2 percent of the market and has no national employer
    market presence. Today Aetna represents under 12 percent of the
    commercial market. Nationally, there are over 400 insurance
    companies operating in the commercial market with a Blue Cross
    Blue Shield plan being the largest insurer in more than 30
    States.
        After the transaction, other companies will have 87 percent
    of commercial enrollment, and on public exchanges Aetna and
    Humana together overlap in only 8 States. In those States there
    are on average 10 other insurance companies as competitors. We
    believe that there will be no material change to the
    competitiveness of the commercial insurance market as a result
    of our transaction.
        Concerning the price of our products, premium prices are
    not determined in the abstract. Instead, they are driven by the
    underlying cost of care such as hospital, doctor, and
    prescription drug costs, which make up nearly 85 percent of
    premium prices. Given that this transaction is largely about MA
    and pricing, protection is even more assured by the Government
    establishing MA rates based on the cost of health care in each
    county. Insurance companies offering MA plans must bid against
    a Government benchmark set in each county and are incentivized
    to be competitive. Hence, many companies offer zero premium
    plans to consumers, zero dollar premium plans.
        In fact, MA premiums have decreased by 6 percent since
    2010. MA enjoys overwhelming support from its members currently
    with a 90-percent satisfaction rating, making it one of the
    most popular Government programs.
        Sharing a common culture. Mergers and acquisitions are not
    just about efficiencies and business goals. Both Aetna and
    Humana share a common culture and, in fact, when Humana CEO
    Bruce Broussard and I met, our discussion was first focused on
    the compatibility of our cultures. Culture trumps strategy.
    Both cultures are focused on improving health, not just selling
    products.
        Some of you may be familiar with my own journey with the
    health care system, and as difficult as that journey was for me
    and my son, it strengthened my resolve to make the health care
    market more competitive and improving the basis of underlying
    health.
        We are focused on building a consumer-centric health
    system, and if we make that happen in Medicare, one of the
    biggest components of our health care system today, we can make
    it happen across all health insurance segments.
        I know when acquisitions occur there is a great concern for
    jobs. As someone who started my career as a blue-collar worker,
    I understand the challenges of living paycheck to paycheck. It
    is why I have led an effort in corporate America to improve the
    wages and benefits of our employees. Aetna raised its minimum
    wage in April to $16 an hour and is subsidizing health care
    benefits for employees whose household income is less than 300
    percent of the Federal poverty level, impacting as much as
    7,000 of our employees.
        As part of this transaction, these benefits will be
    extended to 10,000 Humana employees currently earning less than
    $16 an hour. There will be some dislocation of jobs initially,
    but our expectation is to increase our employment by continuing
    to provide high-quality and affordable products to the market.
        In closing, Aetna's acquisition of Humana is about creating
    positive change in the health care market. It is about being
    part of an effort to build a modern health care system built
    around the consumer. It is about challenging the competition to
    compete not just on old but important dimensions, but improving
    the number of healthy days that consumers can enjoy each year
    to live the most productive lives possible. We believe our
    acquisition will improve competition in the Medicare
    marketplace by providing affordable and higher-quality
    products.
        Thank you for the opportunity to testify today, and I look
    forward to your questions.
        [The prepared statement of Mr. Bertolini appears as a
    submission for the record.]
        Chairman Lee. Mr. Swedish.

                 STATEMENT OF JOSEPH SWEDISH, PRESIDENT

               AND CHIEF EXECUTIVE OFFICER, ANTHEM, INC.,

                         INDIANAPOLIS, INDIANA

        Mr. Swedish. Thank you, Chairman Lee, Ranking Member
    Klobuchar, and Members of the Subcommittee. I am Joseph
    Swedish, president and chief executive officer of Anthem, and
    it is my honor to appear before you today.
        The work of this Committee and the dialog we engage in will
    help shape the future of health care in America, and I
    appreciate the opportunity to contribute Anthem's perspectives
    and experience.
        Several Committee Members represent communities served by
    Anthem's local health plans, and the Committee as a whole has
    been an influential advocate for positive change in health
    care. I would like to begin by thanking all of you for your
    dedication, leadership, and partnership, and by reinforcing
    Anthem's commitment to continue our proud 75-year history of
    providing high-quality, affordable health benefits to many
    local communities and the diverse populations that we serve.
        My written testimony details the complementary nature of
    Anthem's and Cigna's businesses, the market dynamics impacting
    this transaction, and our commitment to working cooperatively
    throughout the review process. I would like to focus my remarks
    today on the most important beneficiaries of this proposed
    transaction: the consumers.
        Health care is undergoing an unprecedented transformation,
    and while affordability, access, and quality are goals
    unanimously shared by our health care system, they are not
    universally enjoyed by consumers. Together, Anthem and Cigna
    will have the resources and capabilities to offer a broader
    portfolio of products and services, to keep health benefits
    more affordable, and to promote accountable, higher-quality
    health care for consumers. Simply put, the combination of
    Anthem and Cigna will allow us to provide better health
    insurance to more people.
        We will keep health care affordable by more efficiently and
    effectively addressing the number one cause of rising costs in
    health care: the cost of care itself. Our combined analytic
    capabilities will empower better informed decision-making
    between patients and physicians and help safeguard affordable
    access to remarkable new clinical discoveries, treatments, and
    technologies.
        Our combined health and wellness expertise will help fill
    gaps in recommended care and more proactively engage consumers
    in managing their own health conditions. We will expand access
    to a broader network of hospitals, physicians, and health care
    professionals so consumers receive the highest-quality care
    available when and where they need it, and improve quality by
    expanding our innovative, value-based accountable care models
    that today represent more than $50 billion in reimbursement
    tied to better value, better quality, and outcomes for members.
        Much of the attention around this acquisition focuses on
    competition, and this is certainly an essential part of the
    dialog. As a baseline, it is important to recognize that health
    care is fundamentally local--locally based, locally delivered,
    and locally consumed.
        Across the many diverse localities and business segments in
    which Anthem and Cigna operate, there is robust and growing
    competition. Given the very limited and, in most areas, no
    market overlap between Anthem and Cigna, competition will no
    doubt continue to flourish after the transaction is completed.
        There are many calculations, analyses, and opinions being
    expressed about what this transaction will mean for
    competition, but the true question to be asked is: What will
    this mean for the consumer? The answer is simple: Anthem and
    Cigna together means better health insurance for more people.
        Throughout my 40-year career in health care, I have worked
    diligently to instill a culture of innovation and collaboration
    across many organizations that I have led, and the combined
    company will be no exception. Separately, Anthem and Cigna have
    made meaningful progress in improving affordability, access,
    and quality for consumers, and together we can and will do much
    more.
        We embrace the responsibility of this transaction and look
    forward to working with you and the entire health care system
    to expand access to affordable, high-quality health benefits.
        Thank you for the opportunity to testify today, and I look
    forward to your comments and questions.
        [The prepared statement of Mr. Swedish appears as a
    submission for the record.]
        Chairman Lee. Dr. Ginsburg.

                 STATEMENT OF PAUL B. GINSBURG, PH.D.,

                  NORMAN TOPPING CHAIR IN MEDICINE AND

                 PUBLIC POLICY, UNIVERSITY OF SOUTHERN

                       CALIFORNIA, WASHINGTON, DC

        Dr. Ginsburg. Chairman Lee, Ranking Member Klobuchar, and
    Members of the Subcommittee, I am very grateful for this
    opportunity to testify on this issue.
        For the past 20 years, I have studied changes in the
    financing and delivery of health care and their impact on
    people. My goal today is to point out how mergers of large
    national insurers fit into the ongoing and future changes in
    health care financing and delivery.
        Mergers among health insurers are inherently difficult to
    analyze. Most insurers, especially large ones, operate in
    numerous market segments, most of them distinct by geographic
    area. As intermediaries between the providers of care and those
    who are insured, they operate as both buyers and sellers. We
    may believe that a merger will lower prices paid to providers,
    but then need to analyze whether these will be passed on to
    those who purchase insurance.
        The Department of Justice will conduct a detailed analysis
    of the possible effects of these mergers, and if there is
    approval, there may be requirements for divestitures. Without
    being privy to this analysis, I do not have a position
    concerning whether or not these mergers should be approved.
        Market concentration is only one dimension that affects how
    competitive health care markets are, and Federal policy and
    other factors behind market entry can have profound effects on
    competitiveness. For example, if Congress created a competitive
    bidding process for Medicare Advantage plans, that market would
    be more competitive. The Affordable Care Act appears to have
    made the market for individual insurance far more competitive
    than it was before, and significant numbers of large health
    systems are entering insurance markets with their own plans
    that favor their own providers.
        Notwithstanding the focus on market consolidation, I see
    some important potential upsides of the mergers we are
    discussing today. For one, Wall Street analysts believe that
    these mergers will lead to substantial reductions in
    administrative costs. The mergers are likely to hasten the
    movement to alternative payment models. Having more lives in a
    market makes a health plan a more attractive partner to
    providers to create these models.
        Mergers allow plans to invest more in data and analytics to
    support providers better in these models. It also addresses the
    vulnerability that many providers feel about the transition to
    alternative models, which they often describe as having ``one
    foot in the boat and the other foot on the dock''. If they are
    passed on to consumers, obtaining lower prices from providers
    can be an upside to mergers. International comparisons of
    spending have long shown that higher provider prices account
    for an important part of higher health care spending in the
    United States.
        Staff asked me to comment on the role that the Affordable
    Care Act has played in these insurance mergers, and I would
    begin by saying that the most controversial parts of the
    Affordable Care Act--subsidies to private insurance and
    Medicaid expansion--likely are not major factors. Other parts,
    though, are more important, though many of these impacts should
    be seen in a positive light.
        Medicare's vast piloting of alternative payment models is
    expanding the opportunity for private insurers to pursue these
    models as well, and cuts in hospital rates and the Cadillac tax
    may also be pushing this forward.
        Medical loss ratio minimums are motivating reductions in
    administrative costs, which they were intended to do. And,
    finally, cuts in Medicare Advantage rates are increasing the
    pressure to make these plans more efficient.
        I would be pleased to answer the Subcommittee's questions.
    Thank you.
        [The prepared statement of Dr. Ginsburg appears as a
    submission for the record.]
        Chairman Lee. Dr. Dafny.

                 STATEMENT OF LEEMORE S. DAFNY, PH.D.,

                   HERMAN SMITH RESEARCH PROFESSOR OF

                 HOSPITAL AND HEALTH SERVICES, KELLOGG

                   SCHOOL OF MANAGEMENT, NORTHWESTERN

                     UNIVERSITY, EVANSTON, ILLINOIS

        Dr. Dafny. Thank you, Chairman Lee, Ranking Member
    Klobuchar, and Members of the Subcommittee for the opportunity
    to testify today on consolidation in the health insurance
    industry. I am a professor of strategy at the Kellogg School of
    Management where I also direct the Health Enterprise Management
    Program. I study competition in health care markets using data-
    driven economic analysis. I previously served as Deputy
    Director for Health Care and Antitrust in the Bureau of
    Economics at the Federal Trade Commission.
        We are here today because Americans are concerned about the
    steep price of buying health insurance. Even as their premiums
    rise, they face increases in deductibles and co-payments. More
    than a decade ago, I began studying whether a lack of
    competition in the health insurance industry contributes to
    higher premiums. It does. We are paying a premium on our
    premiums because of limited competition. My most conservative
    estimate would place that extra premium at over $200 per person
    per year.
        The question before us today is whether more consolidation
    is likely to benefit consumers in the future. To inform that
    discussion, I will describe what we know about consolidation in
    the past, why those conclusions remain relevant, and what might
    increase the likelihood that any future consolidation benefits
    the public.
        First, what do we know? We know less than we should because
    public data are limited and cover only subsets of the industry.
    We know that the market for full medical insurance would be
    deemed highly concentrated in 38 States according to the
    thresholds defined by the Federal Trade Commission and the
    Department of Justice.
        We know that 37 percent of Medicare beneficiaries live in
    counties where the Medicare Advantage market would also be
    deemed highly concentrated. Concentration in both of these
    industries has been rising in recent years.
        The best available evidence on the impact of consolidation
    comes from what are known as event studies or merger
    retrospectives. My colleagues and I studied such an event--the
    1999 merger between Aetna and Prudential. We examined the
    impact of the merger on premiums for large employers in 139
    different geographic markets. Where Aetna and Prudential had
    the greatest overlap we found the largest reductions in health
    care employment and wages. We would have expected premiums to
    go down in these areas, but the opposite was true. Put simply,
    the merger led to reduced payments to providers, but the cost
    savings were not passed through.
        It was not just Aetna and Prudential raising premiums.
    Their rivals raised premiums as well, and premiums did not
    recede, even after Aetna lost significant market share.
        There was a bright spot, though, and that was in Texas
    where the Department of Justice required the merging parties to
    divest plans. There were no significant merger effects on
    providers or premiums in those markets.
        Other researchers have also found that payer mergers lead
    to higher premiums, and there is no evidence that mergers have
    led to improve quality or to more innovation. That was then,
    some might say, and this is now. Insurers now face minimum
    medical loss ratio regulations and must spend at least 80 or 85
    cents out of every dollar collected, net of taxes and fees, on
    medical claims and on quality improvement. Despite what you may
    hear, this regulation does not provide a substitute for
    competition.
        First, it does not pertain to self-insured plans, which
    include more than half of the people in privately insured
    plans.
        Second, in a truly competitive market, insurers also
    compete on nonfinancial dimensions, such as the quality of
    provider networks and their chronic disease management
    programs.
        Third, what if the regulation is eventually repealed?
        Certain mergers may yield efficiencies from economies of
    scale or from other sources, and that is not different today
    than it was in years past. Consumers are likelier to benefit
    from these efficiencies where there is a market imperative to
    pass the savings along.
        In light of the consolidation that has already taken place,
    however, the market imperative is now weaker, and consolidation
    could jeopardize it further.
        In sum, evidence from the past should not be discounted
    when evaluating proposed consolidations. I would caution that
    consolidation that occurs now is unlikely to be undone if it
    later proves anticompetitive. History also suggests that
    vigorous competition by new entrants is unlikely to arise and
    to offset such effects.
        The Department of Justice will evaluate the mergers we have
    just heard about and determine if the deals violate antitrust
    laws and follow through accordingly. Whether mergers are in the
    public interest and whether they violate antitrust law are two
    different issues. To serve the public best, I advise that you
    not only ask tough questions of the health insurance industry
    but demand greater transparency and consider regulations to
    require it. With comprehensive data in hand, policymakers and
    regulators will be able to monitor market developments and to
    intervene if necessary based on better and more timely
    information. Researchers such as myself will be able to provide
    stronger guidance regarding the likely effects of
    consolidation.
        Thank you.
        [The prepared statement of Dr. Dafny appears as a
    submission for the record.]
        Chairman Lee. Mr. Pollack.

                STATEMENT OF RICHARD POLLACK, PRESIDENT

                 AND CHIEF EXECUTIVE OFFICER, AMERICAN

                  HOSPITAL ASSOCIATION, WASHINGTON, DC

        Mr. Pollack. Thank you. Chairman Lee, Ranking Member
    Klobuchar, and distinguished Members of the Subcommittee, on
    behalf of the Nation's hospitals, thank you for inviting me to
    be here today.
        Anthem's proposed acquisition of Cigna and Aetna's proposed
    acquisition of Humana would eliminate two of the largest
    national health insurance companies, leaving just 3 dominant
    providers of health insurance. This unprecedented consolidation
    should be of extreme concern for millions of health care
    consumers, as well as doctors, hospitals, and others who are
    working to improve quality and efficiency while making care
    more affordable to patients.
        For consumers, these deals could make health care more
    expensive and less accessible. This applies to insurance
    purchased in the commercial market as well as Medicare
    Advantage plans.
        We are also concerned about the negative consequences for
    consumers and health care providers that could result from
    further entrenching the power of the Blue Cross and Blue Shield
    system whose plans currently dominate the market in nearly
    every State.
        Another likely casualty of these deals is derailing the
    momentum hospitals have established to improve the Nation's
    health care delivery system in pursuit of better--better
    health, better health care, and lower cost.
        Despite claims that commercial insurers are fostering
    innovation, they continue to benefit financially from both
    squeezing provider payments and riding the wave of hospital
    efforts that are resulting in more efficient and higher-quality
    care. In fact, numerous studies have shown that the quality of
    care hospitals provide is increasing, and at the same time,
    hospital price growth is at historically low levels--less than
    1 percent in 2015 and 1.3 percent last year. There is no reason
    to believe that allowing these insurers to become even larger
    and more immune from competitive forces would change their
    incentive to sit mostly on the sidelines and reap the
    considerable financial rewards of providers' innovation.
        I would like to focus on some of our specific concerns with
    each of the proposed deals. If these proposed deals were to
    close, it would mean that the three largest national health
    insurance companies who last year had more than $345 billion in
    revenue would cover more than 131 million lives. That is about
    2 out of every 5, or 40 percent, of Americans who have health
    insurance.
        Anthem's acquisition of Cigna threatens to reduce
    competition for health insurance in at least 817 markets across
    the Nation that serve 45 million consumers. Because the two
    companies generate more than $100 million in revenue, even a
    slight increase would cost consumers billions of dollars in
    health care costs.
        Meanwhile, if Aetna is permitted to acquire Humana,
    Medicare Advantage plans in more than 1,000 markets that serve
    more than 2.7 million seniors would become even more
    concentrated. That threatens the financial protection the
    Medicare Advantage program provides for enrollees and would
    likely result in higher out-of-pocket costs and fewer benefits.
    The deal would not only eliminate the current competition
    between Aetna and Humana in the Medicare Advantage market, it
    would also eliminate the possibility of future competition
    between them. This is particularly concerning because, even
    now, there is almost no competition in Medicare Advantage
    markets. An August Commonwealth Fund study found that 97
    percent of the Medicare Advantage markets in the United States
    are ``highly concentrated.''
        In conclusion, we are very concerned that both deals could
    result in fewer choices for consumers, narrower networks of
    providers in what few choices remain, and higher premiums and
    out-of-pocket costs. That is why both of these acquisitions
    merit the closest scrutiny from the Department of Justice's
    Antitrust Division and Congress.
        Some have compared the insurance deals to those in the
    telecommunications arena because of their size and potential to
    contort the market and harm consumers. The Department of
    Justice was ready to challenge the telecommunications deals,
    and it should be ready to challenge these insurance deals if it
    finds that these transactions threaten the vitality of our
    health care system and the health and welfare of consumers
    across the Nation.
        We look forward to working with the Subcommittee to make
    sure that consumers continue to have access to high-quality,
    affordable health care in their communities.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Pollack appears as a
    submission for the record.]
        Chairman Lee. Mr. Slover.

                   STATEMENT OF GEORGE SLOVER, SENIOR

             POLICY COUNSEL, CONSUMER UNION, WASHINGTON, DC

        Mr. Slover. Thank you, Chairman Lee, Ranking Member
    Klobuchar, and Members of the Subcommittee.
        Consumers want enough competition to give us meaningful
    choice--easy to compare, and responsive to what is important to
    us. Choice gives us leverage so sellers strive to give us lower
    prices and better quality.
        From our founding 80 years ago, Consumers Union has worked
    to make quality health care available and affordable for all.
    This marketplace is complex in how it operates and motivates.
    Regulation helps ensure safety, control costs, and make better
    health care available. You cannot run the system on competition
    alone and let the free market go where it will. Pre-existing
    conditions is a prime example.
        Competition adds an incentive to want to improve service
    while holding down costs. Some collaboration and integration
    can be good for the overall functioning of the system, but too
    much concentration among hospitals or doctors or insurers can
    undermine the system and harm consumers. Dominant players start
    dictating to others, closing off choices consumers want,
    increasing the prices we pay, and impairing the quality of what
    we receive.
        Health insurers play a key role in controlling costs. They
    gave us the disallowed amount--the difference between what the
    provider wants to charge and what it is willing to accept. A
    dominant insurer could push doctors and hospitals to go beyond
    trimming costs and begin to degrade care below what consumers
    value and need. We are concerned that these two mergers could
    create too much concentration in too many markets with too much
    harm.
        There are submarkets in each local area, different kinds of
    insurance coverage where competition will not cross over.
    Seniors are not giving up Medicare Advantage to switch to the
    State exchange. We need to look at current competition, but
    also where competition could be. These four insurers are active
    throughout the country, and in prime position to expand into
    new markets.
        We need to be skeptical of relying on new entry by others.
    If these four giants have decided that expanding on their own
    is not worth the trouble, how can we count on expansion by
    other smaller, even nonexistent insurers?
        Same with relying on divestitures. For one thing, it looks
    like too many markets are affected here. Second, divestitures
    do not always work. Supposedly, this other company is ready to
    jump in with the same capability and commitment to compete over
    the long haul. That is always a roll of the dice. If this new
    company is really so capable and committed, why wasn't it there
    already?
        It is risky to allow mergers right up to the brink of harm.
    There is no margin for error or change. What if a key player
    later decides to close shop? The law cannot force a company to
    stay in business.
        Some say giving insurers more market power will offset
    market power of hospitals and doctor groups. The answer is not
    to give insurers their own market power and then hope they will
    use it to protect us. That is the sumo wrestler theory: adding
    market power at one place in the supply chain to stand up to it
    somewhere else. The result is more market power. The two sumo
    wrestlers end up shaking hands, finding a path to enrich them
    both, and then everyone else--consumers and smaller hospitals,
    local clinics, and medical practices--gets tossed around and
    flattened.
        We want providers motivated to lower rates without cutting
    corners on quality of care, responding to competition versus
    knuckling under to a market dictator. True, an insurer of a
    certain size can get providers to willingly accept lower rates
    by offering access to enough patients. Where these four giants
    are not already well past that size, you would think they could
    get there by expanding on their own. Being of a size to offer
    that advantage to attract providers and consumers is different
    from having the power to make them an offer they cannot refuse.
        Competition keeps the business interests of health insurers
    better aligned with the interests of consumers.
        The Justice Department's investigations are just getting
    under way. We do not prejudge their outcome. But we want them
    to be very thorough and for the Department to act aggressively
    to protect us.
        Thank you.
        [The prepared statement of Mr. Slover appears as a
    submission for the record.]
        Chairman Lee. Thank you, Mr. Slover.
        Okay. Our first round of questions will be by Chairman
    Grassley, who is with us, but he has to leave in a minute, so
    we will hear first from Chairman Grassley. He will have 5
    minutes, then 5 minutes to Senator Klobuchar, then I will take
    5 minutes, and then Senators Coons, Tillis, Franken, Hatch,
    Blumenthal will proceed in that order.
        Chairman Grassley.
        Chairman Grassley. Thank you, Mr. Chairman, for your
    courtesy, and I would put a statement in the record that I
    would have given if I had been here on time.
        [The prepared statement of Chairman Grassley appears as a
    submission for the record.]
        Chairman Grassley. Mr. Bertolini and Mr. Swedish, there has
    been a good deal of discussion about efficiencies. Both of you
    expect--Mr. Bertolini, I believe you anticipate saving
    approximately $1.25 billion annually by 2018. That stands to
    reason. If there were not cost savings, obviously, I do not
    suppose you would be pursuing these mergers. How will these
    mergers impact the lives of ordinary consumers in Iowa? Two or
    three years after these transactions, will Iowans see a
    difference in their premiums or deductibles? Will their
    experiences be different in terms of service provided? Kind of
    summing it up, at the end of the day, how would these mergers
    make things better for consumers in my State of Iowa?
        Mr. Bertolini. Thank you for the question, Mr. Chairman.
    This transaction is largely around Medicare Advantage, so I
    will speak to the Medicare Advantage marketplace and the
    Medicare marketplace in Iowa. Both Aetna and Humana have had
    very high quality scores. We both have markets--all of our
    markets are 80 percent or better from a four-plus-star rating,
    which seniors value. Over last year, at Aetna alone, over 85
    percent of our enrollment was based on our quality rankings and
    our ability to provide an affordable product in the market.
        Our rates have gone down 6 percent--have gone down--and
    yesterday a study was published from CMS. As a result of rate
    increases, rates will decrease by 31 cents per month for
    seniors across the United States next year.
        We continue to see a decrease in pricing, a broader benefit
    structure for--and offering for seniors, and we view the
    product as high quality and very affordable. A vast majority of
    our members in both Humana and Aetna are low-income members, so
    we believe we are providing a valuable product and service to
    seniors.
        Chairman Grassley. Mr. Swedish, from your point of view?
        Mr. Swedish. Thank you for the question. A very important
    question with respect to how we are going to engage in the
    marketplace regarding the combination of these two great
    companies. Anthem believes that there are three core pillars
    with respect to how we engage in the marketplace, focusing on
    provider collaboration, focusing on building out affordability
    for all of our customers, and then finally recognizing that
    this truly is a locally driven pursuit in terms of creating
    true value for customers.
        Having said that, we believe that the synergies that we
    have identified will translate to benefits for the consumer,
    for instance, building out much more sophisticated, highly
    integrated information management systems that take real data,
    converting it into information that can best be used for
    delivering better care in terms of how the providers are
    engaging with their patients.
        We believe that we will be able to combine that with many
    other opportunities that will drive premiums lower for our
    customers. That is certainly a commitment we have repeatedly
    made and have evidence to that effect today and believe that
    that will certainly play out going into the future as well.
        Chairman Grassley. Mr. Pollack, if the Department of
    Justice concludes that a merger would lead to high market
    concentration in particular markets, typically the remedy is
    for Justice to require divestiture. In both of your letters to
    DOJ regarding these deals, you appear skeptical that
    divestiture will remedy antitrust concerns.
        Why don't you believe divestiture can remedy any antitrust
    concerns that may arise?
        Mr. Pollack. Thank you, Senator. Let's look at the notion
    of who would be a suitable acquirer in the arrangement as it
    relates to Aetna and Humana, where we have identified an impact
    to over 1,000 counties in 38 States that serve 2.7 million
    people. The question is who would be a suitable acquirer in
    that kind of divestiture arrangement, and given the scale of
    that proposed deal, as well as the other one, it just seems so
    large that finding someone that could come in and put together
    the networks and serve those communities would be a very
    difficult objective to achieve.
        Chairman Grassley. Mr. Chairman, because I have only got 11
    seconds left, I am going to put my last question to Mr. Swedish
    in the record for answer in writing.
        Chairman Lee. Without objection.
        [The question of Senator Grassley appears as a submission
    for the record.]
        Chairman Lee. Thank you. Senator Klobuchar.
        Senator Klobuchar. Thank you very much, Mr. Chairman. Thank
    you to the witnesses.
        I guess I will start with you, Mr. Bertolini and Mr.
    Swedish, and you have explained what you see as some advantages
    of these mergers. Could you explain why you have to have these
    mergers to get to where you want to be? Because we have heard,
    you know, contrary testimony from some of the other witnesses.
    Mr. Bertolini?
        Mr. Bertolini. Thank you, Ranking Member Klobuchar. We
    believe that our acquisition is not one of size but of
    capabilities. Humana has taken a step forward in making sure
    that health care can be provided in the home. As a matter of
    fact, in 2014 Humana had 496,000 more member days at home than
    they had in the prior year by providing care in the home and
    bringing the logistics of people, stuff, and technology to
    people's homes to make sure that they can live more
    productively, increasing healthy days.
        Our view is that we want to acquire these capabilities and
    expand them and scale them across our business as part of our
    acquisition.
        Senator Klobuchar. Could you do that on your own without
    them, or you think----
        Mr. Bertolini. We can do it on our own. It would take
    longer, and we believe that the need for affordability and
    higher-quality care is today, not in 3 or 4 years.
        Senator Klobuchar. Okay. Mr. Swedish.
        Mr. Swedish. Yes, let me----
        Senator Klobuchar. Keep it short, because we have other
    questions.
        Mr. Swedish. Let me begin with maybe a portrayal of what is
    being created. Two companies that have distinctly different
    portfolios that are highly complementary, where each company
    has obvious strengths, the other company will benefit from
    those strengths and vice versa. As an example, we--in terms of
    the complementary nature, we both are serving a very large
    national accounts environment.
        Having said that, we also recognize that national accounts
    are typically administrative-services-only type arrangements,
    and in doing so, we then create the opportunity for those
    employers to get the benefit of the savings. It goes directly
    to those employers.
        To get down to a more granular level, what we know is
    whether it is a national account or an individual account with
    respect to serving exchanges, this is all local. Every service
    we provide distills down to a local engagement.
        Senator Klobuchar. All right. Could I--I have some other
    questions. I wondered if some of the other witnesses---if there
    are other factors. I went through what the Justice Department
    typically looks at. Do you think given the changes in this
    industry there are other factors that should be looking at? If
    anyone wants to take a stab at that.
        Ms. Dafny. Thanks, Senator Klobuchar. I will. I would argue
    that the Department of Justice will, of course, consider all
    factors as listed in the horizontal merger guidelines, but they
    might also spend some time thinking about the potential for a
    diminution of cross-market competition. There is evidence of
    that in the hospital industry, and it is possible that as these
    players have repeated contact with one another across different
    market segments and geographies, that might lessen the
    intensity of their competition.
        Mr. Pollack. Senator, we are not an expert on this, but I
    think one of the things--questions that needs to be looked at
    are the Blue Cross Blue Shield rules that give control over
    Blue lives in multiple States. There is an extensive
    interconnection among the Blue System, and the Anthem-Cigna
    deal will add to Blue dominance and create even larger barriers
    to entry. I think that that is something that also needs to be
    examined as well.
        Senator Klobuchar. Okay. In your testimony, Mr. Pollack,
    you talked about how you are against the consolidation on the
    insurance side, but basically you seem to believe we need more
    of it in the provider side. Could you reconcile that? Because
    we have had some consolidation, and there are some advantages
    to it, but it also, I think, has contributed to higher prices.
        Mr. Pollack. I appreciate that question. What we have seen
    in terms of price growth, as I said before, is hospital price
    growth is going up at one percent this past year, 1.3 percent
    the year before. More significant, I think, is the objective of
    hospital consolidation. The objective of hospital consolidation
    is to bring together networks of caregivers that can move us in
    a direction to better coordinate care.
        We did a study looking at hospital mergers over a 5-year
    period of which there were 607, or 12 percent, over that period
    of time. We found that when you looked at the 607, all but 22
    of those mergers still left 5 hospitals in the market after the
    merger. If you look at the ones that did not fit that category,
    most of them were saving hospitals from going bankrupt or
    reconfiguring them in a different way so they could serve their
    community.
        Senator Klobuchar. Okay. Thank you.
        Mr. Slover, would you agree with that, or are you concerned
    about consolidation on both ends?
        Mr. Slover. We are concerned about all consolidation at any
    level, and it is a question--the benefits of the integration
    and coordination that we are hearing about here all make sense
    up to a point. Then the point where we get concerned is when it
    goes beyond being able to provide a better service, and becomes
    about being able to exert leverage over others to reduce their
    ability to make choices, and ultimately that reduces consumers'
    ability to make choices.
        If there is a hospital network that has too much of the
    power in a local market, that reduces choices for providers and
    for insurers. Similarly, if there is a doctor group practice
    that has everybody, then they are the only game in town. I
    think it needs to be looked at across the board.
        Senator Klobuchar. Thank you.
        Chairman Lee. Mr. Swedish, I will start with you. I have
    got a few questions at the outset about how Cigna would be
    integrated into Anthem's Blue Cross and Blue Shield plans.
        My understanding is that, as a Member of the Blue Cross
    Blue Shield Association, Anthem is subject to something called
    the ``best efforts rule,'' and correct me if I misstated this,
    but my understanding is it requires, among other things that no
    more than one-third of Anthem's total health care revenue may
    come from non-Blue-branded health plans.
        My first question is: Wouldn't this limit your ability to
    compete under the Cigna brand if the merger were completed?
        Mr. Swedish. Thank you for the question. There are a lot of
    characterizations about the Blue Cross Blue Shield organization
    and our part in that delivery distribution in the marketplace.
    You should know that we are in 14 States licensed as a Blue
    Cross Blue Shield plan. We do not compete in other States by
    way of the so-called license agreement we have with the
    association, so that we are strictly performing in those 14
    States.
        What will then happen with respect to the Cigna acquisition
    is the fact that in our so-called non-Blue States, those States
    outside of our 14-State domain, Cigna will compete; it will be
    a competitor in the marketplace competing against the Blue
    Cross Blue Shield plans in those States.
        Within our own 14 States, the Cigna brand, the Cigna
    products may, in fact, come into our Blue Cross portfolio
    within those 14 States. However, in the national accounts
    space, it will still continue to compete as Cigna.
        It is a combination of kind of placements in the country
    that are based on our Blue States and our non-Blue States where
    Cigna will, in fact, compete.
        With respect to the best efforts rule that you brought up,
    we do need to comply with that rule, and we do not need to
    respond to the rule in terms of how we will comply until after
    the transaction closes, and then we will have 2 years
    thereafter to adjust our portfolio. We do not believe that that
    will be an impediment to the deal, nor do we believe that will
    present any kind of competitive deterioration in the
    marketplace.
        Chairman Lee. Whereas today Cigna has every incentive, it
    is incentivized naturally as a result of market forces to
    compete as vigorously as possible and to fight for as much
    market share as possible, but won't the best efforts rule
    necessarily limit and cap Cigna's future competitiveness given
    that arrangement?
        Mr. Swedish. Mr. Chairman, we believe that it is just the
    opposite, that our acquisition of Cigna will, in fact, make the
    Cigna brand stronger nationally in terms of the non-Blue States
    where they will compete against all plans. I think if there
    will be a significant upside to the Cigna brand in those
    markets with respect to whether it provides support to national
    accounts, large-group, or other methods that it will engage in
    the marketplace.
        Chairman Lee. Okay. I have got another question now that I
    want to ask to both you and to Mr. Bertolini. Each of you
    talked a little bit about how customers, consumers would
    benefit from your respective transactions as a result of
    improved efforts in connection with value-based health care.
    Tell me how these benefits would be merger-specific? That is,
    why couldn't those benefits be achieved in the absence of the
    merger?
        Mr. Bertolini. Thank you for the question, Mr. Chairman. In
    the--it is about, again, capabilities and presence in the
    marketplace, having a footprint of products that you are able
    to contract with the provider system. This discussion earlier
    of living in two worlds, fee-for-service and value-based
    insurance design, the more of the revenue that you can include
    in the new design, the easier it is for the provider to
    transition. From our point of view, having that opportunity to
    provide a broader breadth of products by market, where we can
    engage in a full conversation with the provider about changing
    their revenue model to a value-based model, is our intent.
        Mr. Swedish. With respect to our engagement in the
    marketplace, we believe that there are three core elements:
    focus on the consumer, focus on the provider, and then focus on
    building value that is then delivered to the consumer.
        With respect to value-based payment methodologies, and we
    probably can label them ``alternative payment models,'' just
    within the last 3 years we have built out a value-based payment
    reimbursement effort that now totals 53 percent of all of our
    payments to providers being value-based. We have an
    infrastructure now then combined with the Cigna infrastructure
    that we believe will accelerate at a very fast pace value-based
    payments to the marketplace, value that then does go to the
    consumer.
        As an example, we have 150 ACOs, Cigna has 114 ACOs. We
    have 780 hospitals that are now affiliated with us and these
    alternative payment methodologies with over 100,000 physicians
    that are participating. Cigna has likewise built a very elegant
    infrastructure that, in alignment with us and engaging in the
    marketplace, we believe we will deliver tremendous uptake in
    value that will benefit the consumer.
        Chairman Lee. Thank you. Senator Franken.
        Senator Franken. We are not going to recess for votes now?
        Chairman Lee. We may be recessing in----
        Senator Franken. I can get through this? Okay.
        I am going to depart from where I was going to go, but I
    was just listening to Mr. Swedish's answers on Cigna now which
    is competing in MA--or is competing against Blue Cross Blue
    Shield, will not be able to. I saw some skepticism about your
    answers, and I want to make these answers short. Dr. Dafny, did
    you share with me a little skepticism? Because I think that all
    the Cigna plans will not be able to compete with the Blue plans
    in many of these markets.
        Dr. Dafny. Thank you for the question, Senator Franken. My
    first response is with regard to the national plans, the notion
    that Anthem and Cigna would continue competing in that segment.
    They are going to be the same entity, so they might have two
    names, but I do not see how that is competition.
        With respect to whether the agreements with the Blue Cross
    and Blue Shield Association would inhibit the expansion of
    Cigna as a brand, that very much depends on how big they are in
    the various markets and whether they would exceed the
    thresholds. I would say I sure wish I had the data to assess
    the veracity of the claim that that constraint is not binding.
        Senator Franken. Okay. I am going to continue on because
    you spoke to that--I am sorry? I have got to go pretty soon to
    vote. Okay. Let me try to do this fast. Mr. Slover, I wrote the
    medical loss ratio provision of the ACA, which everyone knows
    requires insurers to pay at least 80 percent--85 percent of
    their premium dollars on actual health care, for large groups,
    85. MLR has saved literally billions of dollars for consumers.
        I am just a little worried about a couple things. Dr. Dafny
    said something about that it could be repealed. I hope not. Can
    you talk to how MLR has been saving money for consumers and
    made competition better in the insurance markets?
        Mr. Slover. Yes, Senator. We are strong supporters of the
    medical loss ratio requirement. We are very glad it is in the
    law. It has brought tremendous benefits to consumers, as you
    indicated, billions of dollars, and it has disciplined insurer
    spending. It works only in that one dimension--it is working
    very well in that one dimension--to put a floor on the
    percentage of premiums that has to go to paying for health care
    and quality improvements.
        It does not address the other ways that competition can be
    affected by mergers, and if we lose the competition among
    insurance companies in the non-price ways--competition is not
    just about price, although price is maybe the easiest way to
    measure it. And so we think that for all of the great work that
    the MLR has done, it works better in conjunction with a
    competitive marketplace.
        Senator Franken. Absolutely.
        Mr. Bertolini and Mr. Swedish, you both described how
    savings will be passed along to consumers, so are you saying
    that you will commit passing these savings on to your policy
    holders?
        Mr. Bertolini. It is our intention to make our products
    more affordable, and we commit to continue to drive
    affordability across the system in the changing relationship
    with providers.
        Senator Franken. That is not quite an answer to my
    question.
        Mr. Bertolini. Okay.
        Senator Franken. Do you commit to passing along savings to
    your policy holders?
        Mr. Bertolini. Which savings are you referring to, Senator?
        Senator Franken. The savings that you will have by virtue
    of being able to do this merger.
        Mr. Bertolini. We will need to do that and more in order to
    make products more affordable going forward.
        Senator Franken. That is not quite an answer. Will you
    commit to passing along the savings to your policy holders?
        Mr. Bertolini. Our savings will be passed along in the
    price of our product.
        Senator Franken. Mr. Swedish, do you commit to passing
    along the savings, all of the savings to your policy holders?
        Mr. Swedish. We are committed to driving affordability for
    all of our customers. We are committed to balancing the
    investments that are necessary to improve our products for the
    benefit of our consumers. I believe by definition that
    generates savings that goes to the consumer.
        Senator Franken. Do you commit to pass those savings on to
    the consumers?
        Mr. Swedish. We will certainly do so to the extent that we
    are providing a very balanced portfolio of offerings to the
    marketplace that is driven by great value, driven by the desire
    that the customers want us to address, and, again, I do believe
    that all translates to improved distribution of savings to the
    consumer.
        Senator Franken. I am out of time. I do think that we could
    have gone quicker if those answers were, ``Yes.''
        Chairman Lee. Okay. I am going to go vote right now.
    Senator Hatch is going to assume the gavel while he does his
    questioning for the next few minutes. I am going to be very
    fast. I hope I will be back by the time he finishes. If not, we
    will go into a recess for a few minutes until Senator Klobuchar
    and I are back.
        Senator Hatch.
        Senator Hatch. [Presiding.] Thank you, Mr. Chairman.
        Let me just ask this question to Mr. Bertolini and Mr.
    Swedish. Opponents of the merger argue that entry into a
    commercial health insurance market is difficult because it
    requires an entrant to assemble a broad provider network and
    obtain prices and discounts comparable to leading incumbents.
    Do you agree with that view? I would like to have an answer
    from both of you. If so, why or why not?
        Mr. Bertolini. Senator Hatch, our acquisition is largely a
    Medicare Advantage combination, so there will be very little
    impact, if any, on the commercial marketplace, and we see no
    competitive impact related to all market entrants.
        However, there are 400 commercial insurer competitors in
    the marketplace today. There are new entrants, 75 in the last
    three years on the public exchanges as they begin to offer more
    products and services. We think there is a robust competitive
    market. There are ten in the overlap markets between Aetna and
    Humana. There are ten commercial competitors in the public
    exchange markets today.
        Senator Hatch. Mr. Swedish.
        Mr. Swedish. Yes, sir. Thank you for the question, Senator.
    Initially, when you take what we offer in the market and
    dissect it, looking at products related to small-group,
    appreciate the fact that the relationship with Cigna and Anthem
    presents absolutely no overlap in the sense that Cigna does not
    support the small-group marketplace. There is no competitive
    threat there.
        Number two, if you look at the individual space--and this
    is critically important--we are both in many States. We only
    overlap in five States. What is fascinating about it is that
    the choices to the consumer in the individual space is
    incredibly robust. They can now choose from an average of 40
    health plans in terms of being able to secure health insurance
    coverage for their access into the individual market.
        We have witnessed tremendous growth in the number of plans
    serving the marketplace. As an example, we have witnessed the
    fact that a lot of provider health care delivery systems now
    are offering health insurance products to the marketplace.
        Again, I believe competition is robust. The entry points
    are many, and it is producing tremendous opportunity for the
    market to receive products and services for many health plans
    going forward.
        Senator Hatch. Thank you, sir.
        Mr. Slover, based on past experience, how likely are
    enrollees to change plans when premiums go up or benefits are
    cut? If a post-merger Aetna or a post-merger Anthem were to
    raise prices or degrade service, how likely is it that they
    would lose subscribers?
        Mr. Slover. There probably is some sticking effect up to a
    point, where consumers are going to stay with who they have got
    and employers are going to stay with who they have got. It is
    important that they have a choice, another place to go, and a
    place where they can get as good coverage as they had before,
    or better coverage, at a more affordable price, and to have
    those insurers competing against each other to hold each other
    in check. What we are concerned about--and this is something
    that the Justice Department is going to have to look at in each
    one of these markets--is how this combination is going to
    affect that and is going to risk losing that benefit.
        Senator Hatch. Could I have you two, Mr. Bertolini and Mr.
    Swedish, can you comment on his comments?
        Mr. Bertolini. Senator, all--like politics, all health care
    is local, and there are many competitors and a lot of
    variability in each marketplace.
        In the Medicare Advantage space, where we are, which was
    the large driver behind our acquisition, there are 18 different
    plan options available to seniors, and in nonrural markets and
    in rural markets, there are 10. We view the ability for lots of
    choice still available. Medicare Advantage rates have dropped 6
    percent since 2010, and the benchmark, the Government benchmark
    against which we compete is still dropping every year, and so
    we see the market still very competitive.
        Wall Street is investing in new entrants into the
    marketplace. The plan called Oscar, which entered the New York
    market, a very large market, just received a $32.5 million
    investment from Google to open that marketplace up.
        Senator Hatch. Mr. Swedish.
        Mr. Swedish. Senator, I can simply underscore what Mr.
    Bertolini brought out by referencing Dr. Ginsburg's paper. On
    page five, he speaks to the growth in just one sector of the
    industry, and he states that, ``A recent Avalere Health
    analysis reports that 15 of the 28 new entrants into Medicare
    Advantage between 2012 and 2015 are, in fact, health systems
    and 37 provider sponsored plans offer coverage on public
    exchanges.''
        I simply want to underscore that there are many new
    entrants to the marketplace, Oscar being one. That is probably
    more recent and called out quite frequently as an entrant that
    is having great success in the marketplace.
        Again, competition is becoming more robust in every sector
    of the health plan marketplace.
        Senator Hatch. Professor Ginsburg, what is the relevant
    market or markets here?
        Dr. Ginsburg. Excuse me, sir?
        Senator Hatch. What is the relevant market or markets here?
        Dr. Ginsburg. Two markets have become particularly easy to
    enter and we are seeing entrants. One is the individual market,
    which is a result of the public exchanges, and the other is
    Medicare Advantage. I am not seeing that much entry in other
    markets, but as the other witnesses have said, the individual
    and Medicare Advantage markets are becoming more competitive.
        Senator Hatch. Is it the national market--is it each State
    market or is it some number of smaller geographic markets
    that--and should traditional Medicare and Medicare Advantage be
    considered part of the same market or different markets? What
    is the right way to define the health insurance market? I guess
    that is what I am getting down to.
        Dr. Ginsburg. It is very challenging. In some markets,
    those for individuals, for small groups, for some of the large-
    group markets, are very local. Medicare Advantage plans have
    very local markets. For large self-insured employers, a lot of
    that is a national market. That is quite distinct.
        Senator Hatch. Would you care to comment, Professor Dafny?
        Dr. Dafny. I would concur that market definition depends on
    the access channel on the specific customer segment, and it
    would be different for commercial populations and for Medicare
    Advantage populations most likely.
        Senator Hatch. Thank you.
        Let me go back to you again, Mr. Bertolini and Mr. Swedish.
    Mr. Bertolini, the American Hospital Association has argued
    that the Aetna-Humana merger would increase the HHI score for
    Medicare Advantage by over 200 points in 1,924 highly
    concentrated markets and by over 100 points in another 159
    highly concentrated markets.
        Mr. Swedish, the association has similarly argued that the
    Anthem-Cigna merger would increase the HHI score for commercial
    health insurance by over 200 points in 600 highly concentrated
    markets and by over 100 points in another 217 highly
    concentrated markets.
        You first, Mr. Bertolini, but then Mr. Swedish, do you
    agree with those calculations? If not, why not? I would like to
    know, anyway. If those calculations are correct, does that mean
    that the mergers will presumptively increase market power? You
    can go first, Mr. Bertolini.
        Mr. Bertolini. Thank you, Senator. I will point to a
    comment that Dr. Ginsburg made earlier, that market
    concentration is just one measure of looking at potentially
    anticompetitive issues. I am not an expert on the HH Index. I
    have enough to do in my day job to manage all that I can think
    about relative to medical loss ratios and the like.
        What I would say is that as we look at the markets where
    Aetna and Humana compete, again, we have 18 competitors in
    nonrural markets, and in rural markets we have 10 competitors--
    10 plans offered, and 18 plans offered in nonrural markets. We
    see plenty of competition, plenty of entrants. The 28 entrants
    over the last 3 years have been more than half hospital
    systems, and we view that in the event we get to a point with
    the Department of Justice where we need to engage in any
    divestitures, that there will be hospital systems that will
    want to have another particular to enter the Medicare Advantage
    market.
        Thank you.
        Senator Hatch. Mr. Swedish.
        Mr. Swedish. Senator, likewise, I am not completely
    familiar with the analytics that you mentioned, and, in
    particular, the research results that have been referenced. I
    would rather respond back to the Committee at another time
    maybe for the record very soon, and, of course, to the
    Department of Justice regarding their assessment of the
    combination of these two companies. That is probably the best I
    can offer at the moment.
        Senator Hatch. Thank you. It has been interesting to me.
        I am supposed to recess until further notice. I think they
    will be back shortly from their votes. We will just recess
    until the Senators get back.
        [Whereupon the hearing was recessed and reconvened.]
        Chairman Lee. We are ready to reconvene. Senator Klobuchar
    is next.
        Senator Klobuchar. Thank you very much, Mr. Chairman.
        I talked a little bit about the health insurance
    consolidation, and I know we had some quick answers there from
    both of you. We have a little more luxury of time now. If you
    could finish up, Mr. Swedish, I was asking you, remember, about
    why you needed the merger to achieve some of these cost goals
    that you have.
        Mr. Swedish. Thank you for the follow-up question. What I
    would like to do is maybe describe to you the various products
    and services that we do offer in terms of how we segment our
    business. This is a highly segmented industry that then serves
    a very focused effort in and around the local markets.
        For instance, we are very active, as is Cigna, in the
    national marketplace serving large accounts, large national
    accounts. These are very sophisticated, highly educated buyers
    of health care services, typically using consultants who then
    they rely upon to make the selections for the health plan that
    will serve them in the national market space that they reside
    in. Typically they will choose two or even three health plans.
    Again, very competitive landscape in the national account
    marketplace.
        Specific to your question about why come together, we will
    both be better able to serve that customer base of national
    accounts that really highly desires our support as an
    administrative-services-only support team to what they need in
    terms of health plan delivery.
        What is fascinating, when people ask about the competitive
    landscape specific to national accounts, is that there are 130
    unique health benefit companies serving that self-insured
    marketplace. In 2014, there were 30 new companies that began
    competing in that space. The GAO reported in 2014 that there is
    an average of 11 insurers competing in that large-group market
    for specific contracts. You can see that the combination of our
    two companies in an area where we are most active is very
    valuable to the customer.
        Let me briefly go to another environment. Small-group,
    while you were out I mentioned we do not cross over at all.
    They do not have small-group. We will continue our small-group
    coverage and competition in the markets we serve.
        With respect to the individual space, especially in an
    exchange environment, they have a very small market presence in
    the individual space, and today consumers can choose from an
    average of 40 plans that support their choices, and in that
    regard it is all about choice. Whether it is a national
    account, small-group, individual plans, we are coming together.
        Finally, the complementary nature of the two companies
    allows us to combine to then access their expertise in the
    international market, which we do not have a presence in that
    space.
        Finally, services like wellness programs are very vital to
    moving the needle on value for the customer, and Cigna has a
    phenomenal wellness program that will integrate with us, which
    then translates to more value to the consumer.
        The combination of all those products and services really
    brings value to the marketplace that I would argue is
    exponentially more significant in value than what we can offer
    as stand-alone organizations. Thematically, we both believe one
    and one equals three in terms of the combination, in terms of
    how we can serve the customer.
        Senator Klobuchar. Dr. Ginsburg and Dr. Dafny, you both
    have these studies that you are relying on on consolidation
    that you have talked about. Could you just explain them in more
    layman or laywoman's terms, which is where do you see this
    market going, and when you kind of look at the big picture view
    and how it is going to affect consumers? Maybe you want to
    start, Dr. Ginsburg.
        Dr. Ginsburg. I would say that the----
        Senator Klobuchar. Your microphone, there.
        Dr. Ginsburg. The literature on insurer consolidation is a
    very limited one. Professor Dafny's study of the Aetna-
    Prudential merger, which was 15 years ago, is well regarded.
    She also explained how difficult it is to do these studies. The
    information on provider mergers is much clearer and----
        Senator Klobuchar. What does that show?
        Dr. Ginsburg. That hospital mergers lead to higher prices
    without an impact on quality. This is a very extensive
    literature that has been synthesized by very good people.
        Nevertheless, there are other dimensions that are quite
    relevant besides consolidation. Policy can make some markets
    much more competitive, and this has happened in the Affordable
    Care Act.
        Senator Klobuchar. That is right. You know, we do have a
    lot of that in our State because with the geographic
    disparities between parts of the country and the fact that
    certain States in certain regions of the country seem to have
    had in place historically more incentives or a different
    culture that makes things more cost-effective and higher
    quality, and that is certainly what we have in our State. That
    is what I was kind of trying to get at, too, that could be a
    potential solution here because it still--the Affordable Care
    Act has those incentives, but we still have not seen the full
    results of them. We have seen some.
        Dr. Ginsburg. Yes. One of the upsides to consider--and
    perhaps not overdo it--is that we are placing a lot--a big bet
    as a country in alternative payment models--value payments. It
    is really the only thing we have got to try to address costs on
    a long-term basis. There are some situations where insurer
    consolidation can lead to this trend moving forward more
    rapidly. The role of Medicare has been and will be very
    important in this trend because providers need to move all of
    their--eventually all of their patients from fee-for-service to
    value payment models.
        Senator Klobuchar. Dr. Dafny.
        Dr. Dafny. If I may, I am delighted by the question, what
    can we learn from prior research on this. In addition to the
    discussion of the Aetna-Prudential merger, there is a study on
    another large merger in Nevada, United and Sierra, that found
    large increases of 14 percent in small-group premiums. I have
    myself done a study on the individual insurance exchanges which
    demonstrates that competition on exchanges also leads to lower
    prices. In particular, one of the large nationals sat out in
    the first year, and we estimate that in those areas where they
    had a bigger presence in the individual insurance market,
    premiums on the exchanges were higher. Competition matters. It
    matters today. It mattered then.
        Senator Klobuchar. Okay. Very good. Thank you.
        Chairman Lee. Senator Blumenthal.
        Senator Blumenthal. Thank you, Chairman Lee. Thank you all
    for being here today and for the excellent testimony you have
    offered so far.
        I am deeply concerned about these mergers because of the
    potential effect on competition and the concentration of power
    in fewer hands. I have expressed those concerns publicly. In
    some sense, I have a feeling that, like the saying about
    marriage, that this merger may be the triumph of hope over
    experience. The experience that is suggested by a lot of the
    scholarship done in this area is that consolidation is so
    rapidly taking over this industry, and we have seen it in other
    industries, and we have seen the consequences of it in higher
    prices, in this instance potentially higher premiums. I am
    deeply troubled by the evidence that shows that neither
    providers nor consumers benefit from these consolidations; in
    other words, that the Prudential-Aetna experience shows that
    premiums are not lower, that consumers do not benefit, and that
    the savings are not passed along to consumers.
        When viewed together, I think both of these proposed deals
    raise those serious competitive concerns, and in addition to
    conducting a market-by-market analysis, I believe that the
    Department of Justice also must scrutinize these mergers
    together, all together, as part of a single national health
    care market. The goal has to be to sustain and enhance, if
    possible, competition and protecting consumers.
        I want to focus in particular on an area that has not been
    covered so far, and that is the issue about barriers to entry.
    As you may know, in 2010 former Assistant Attorney General
    Christine Varney explained the results of a review of the
    Antitrust Division into the question of barriers to entry in
    the insurance marketplace, and this was her conclusion before
    the American Bar Association quote: ``Our conclusions reinforce
    our concern about strong barriers to entry and expansion in
    health insurance markets and are particularly significant in
    light of the enactment of the Affordable Care Act. It is,
    therefore, imperative that the Division prevent mergers or
    acquisitions that will create or even increase the size of
    dominant health insurance plans, particularly in the small-
    group and individual markets. Entry defenses in the health
    insurance industry generally will be viewed with skepticism''--
    she was talking about the DOJ--``and will almost never justify
    an otherwise anticompetitive merger.''
        The suggestion has been made--and I think it is a pillar of
    the argument for this merger--that these barriers to entry are
    insignificant, and I think experience belies that contention,
    as Assistant Attorney General Varney explained.
        I would like responses from Mr. Bertolini and Mr. Swedish,
    if you would, please.
        Mr. Bertolini. Thank you for the question, Senator. I
    understand your point of view. I would like to make clear what
    the data shows us in the markets where we compete.
        In Medicare Advantage, there is plenty of competition: 28
    new entrants, more than half hospital systems over the last 3
    years; more and more hospital provider systems are entering the
    market; more than 70 new competitors on the public exchanges.
    In the public exchanges where we have overlap between Aetna and
    Humana, there are at least 10 other competitors.
        Investments by Wall Street, private equity and venture
    capital into health care, starting new health plans, as
    evidenced by Oscar in New York where Google just this last week
    invested $32.5 million in furthering their expansion in the New
    York marketplace.
        All health care is local, just like politics. At the local
    level, we continue to see more and more entrants, and we
    continue to see more competition. We are not at all concerned
    about the lack of competition in the local markets.
        In Medicare Advantage specifically, the Government sets a
    benchmark which it requires us to beat in order to offer a zero
    premium plan to consumers, and so we have over the last 5
    years, from 2010, reduced rates by 6 percent in Medicare
    Advantage to the benefit of seniors both with a higher-quality
    product and a more affordable product each year.
        Senator Blumenthal. Mr. Swedish.
        Mr. Swedish. Thank you, Senator. If I understand the
    question, it is dealing with barriers to entry and the
    perception that barriers do exist such that new entrants cannot
    come into the marketplace.
        Senator Blumenthal. There are powerful barriers to entry,
    notwithstanding what Mr. Bertolini said. I understand your
    point and I respect it. I cannot just start an insurance
    company that will have any hope of competing with the combined
    entity once this transaction is completed. Yes, all health care
    is local, like all politics is local, but there is national
    politics, there are national markets, and those markets are
    profoundly important for the Department of Justice to review in
    scrutinizing this merger because of the barriers to entry. That
    is true of other industries as well. That is the perspective
    that prompts my question.
        Mr. Swedish. Yes, sir, and I certainly appreciate that
    perspective. What I can share with you is that there are many
    new players that have entered the market and continue to enter
    the market. What I would like to do is begin with the reference
    to Oscar that Mr. Bertolini just brought up: Serving New York
    and New Jersey, year one of their entry into that highly
    competitive marketplace, they accumulated 45,000 new members,
    and the company was founded based on venture capital funds and
    just recently a Google investment that will accelerate their
    engagement in the marketplace by them going to California next
    year. Again, one company, multiple products, demonstrated
    success in year one.
        Let me underscore maybe the bigger view. As we deal with
    the national marketplace for large-group and national accounts,
    what we have witnessed is 30 new companies that have entered
    the marketplace competing in the national accounts sector. The
    GAO report brought out the fact that, on average, there are 11
    insurers competing with--amongst themselves for national
    accounts.
        With respect to another slice of development in the
    marketplace, PwC in 2014 revealed that 50 percent of U.S.
    health care systems have or intend to apply for an insurance
    license. In fact, it was just brought out a little while ago
    that, with respect to serving public exchanges, 37 provider-
    sponsored plans now are in the marketplace offering coverage
    for enrollees in the exchange environment.
        My point is that competition is becoming more robust, not
    less. With respect to our combination with Cigna, quite
    frankly, we are compatible and complementary companies without
    a lot of overlap in how we engage in the marketplace. In that
    regard, I believe we will bring great value to our customers
    and we will compete very effectively in the marketplace by
    virtue of this combination.
        Senator Blumenthal. My time has expired. I want to thank
    both of you for your very informative responses. I think we
    have only begun to scratch the surface in terms of the data and
    the material that has to be reviewed by the Department of
    Justice, and I hope that the scrutiny will be exacting and
    demanding, as I know you expect it will be. There seem to be
    two very different factually ground perspectives here--one
    offered by Professor Dafny in the charts and testimony that she
    has offered, and the other that you have presented. I think it
    may result from the way markets are sliced and diced in the
    different analyses that are done, and my hope is that the
    Department of Justice will look at the national market rather
    than only the local markets, because insurance is not all
    local. Thank you.
        Thanks, Mr. Chairman.
        Chairman Lee. Senator Tillis.
        Senator Tillis. Thank you, Mr. Chair. I want to welcome all
    the panelists. Thank you for your testimony. I was here for the
    testimony, and I apologize. I had another meeting, a vote, and
    another meeting, and then another meeting before I got back
    here. It is not for lack of interest, and I will certainly be
    reviewing some of the comments from some of my colleagues.
        You know, this is a very complex process, not only the
    issues that you have to deal with in terms of the geographic
    market, the competition, the saturation, all these other
    things, a number of the things that Dr. Dafny mentioned that go
    beyond, I think, the things that we tend to look at.
        I for one am glad that Congress saw their way fit to make
    this task something that the DOJ would do for a variety
    reasons, one I will get to in a minute.
        You know, as far as I am concerned, market concentration is
    what I do when I am at the grocery store and trying to figure
    out what my wife asked me to buy when I went there. The way
    that you are looking at market concentration here and all the
    other factors I think is appropriately in an area that should
    be making judgments on a nonpolitical basis, on the merits of
    the deal based on factors that have been outlined.
        Here is a concern that I have with this particular
    transaction. It has been alluded to by some of the comments
    today. You know, different public policies that have been
    outside forces that are causing some of these things to occur,
    either in the insurance industry or in the hospital industry.
        My question is: Do you feel like in light of particularly
    even some biases on the administration's part about where we
    should go with health care in the future in this Nation, do you
    feel like that the process that we have in place in the DOJ is
    likely to produce a decision based on the parameters set forth
    versus something that may potentially be influenced by an
    outcome that better serves a legacy agenda item? I will start
    with--actually, I will start with Dr. Ginsburg.
        Dr. Ginsburg. Certainly the Department of Justice is guided
    by the age-old antitrust laws, which have served the country
    very well. Clearly there are judgments that are hard judgments
    to make, and I really cannot get into the minds of the
    officials in the Justice Department as to how they will come
    out. I think they are committed to a very extensive review.
        Senator Tillis. Mr. Bertolini, what are your thoughts.
        Mr. Bertolini. Senator, I believe the process is very
    thorough and complete, and we expect that it will be a fair and
    appropriate process.
        Senator Tillis. Dr. Dafny, you mentioned--and I am a data
    person myself. I ran a data analytics practice back before I
    entered politics. Do you feel like the process today--do you
    have enough insights into the process now? It may be that you
    and I may be coming from a different frame about the argument
    that the data would support. Do you feel like the process
    appropriately incorporates considerations for the kinds of
    things that you look at when you are studying this?
        Dr. Dafny. I am confident in the process of the Department
    of Justice. I just wish that the public had some access to the
    information so that we could perform analyses, too.
        Senator Tillis. I think that is a valid point in terms of
    transparency. I understand some of the competitive elements
    that have to be taken into account.
        I have another question, and it seems to me that one trend
    would cause the other trend to occur. I know in North Carolina
    we have had a lot of consolidations. To your point, Mr.
    Pollack, we have had hospitals, problem hospitals in rural
    areas that were acquired and but for that may have been out of
    business, diminishing our ability to serve the rural
    population, which is the most underserved at least in North
    Carolina, probably nationally.
        By the same token, that consolidation, you had mentioned
    how it has improved outcomes and possibly improved the delivery
    of services. It has also created large provider networks. One
    of the advantages to the kinds of mergers that we are talking
    about here is that--and I am not missing the sumo wrestler
    analogy that Mr. Slover gave, but as long as that trend
    continues, it seems to me that, as someone who also was
    involved in strategic sourcing and supplier negotiations, that
    there is a valid argument that, to the extent that you have a
    larger buyer base, strategic sourcing base, you are probably
    going to be able to negotiate better price points not only for
    medical services provided but also addressing a very serious
    problem about the cost of pharmaceuticals.
        I will start with Mr. Swedish and then, time provided or
    Chair allowing, have at least one other person respond. Thank
    you.
        Mr. Swedish. Thank you, Senator. If I understand the
    question, it is about provider consolidation and the----
        Senator Tillis. No, I am looking at--provider consolidation
    is something that the hospital industry has used as an argument
    for improving care and reducing cost. I would think that a part
    of your argument--there is very clearly a model that you want
    to adopt and have pervasive in terms of the products and the
    services you provide. What I am getting to is the business of
    your business, where you have got to get out there and
    ultimately negotiate provider rates that can fit within the
    models that ultimately bend the cost curve, reduce the cost of
    pharmaceuticals, reduce the cost of the medical services
    provided.
        My point is it seems inconsistent to argue that the
    consolidation of hospitals to address their challenges is okay
    but the consolidation of insurance companies, if they fit
    within the DOJ constraints for such a merger, would not be
    okay. I am just trying to understand why that is inconsistent
    or not inconsistent.
        Mr. Swedish. Thank you for that clarity, Senator. If you
    can indulge me, I would like to give you a tale of two cities.
        One, as I mentioned earlier, our organization, Anthem, has
    developed a value-based payment infrastructure that today 53
    percent of our payments to providers are value-based driven,
    i.e., alternative payment models. We have got 106,000
    physicians that are participating in those models that I think,
    as they say, vote with their feet. They are part of the models
    going forward, to your point.
        Cigna's infrastructure likewise has multiple models, ACOs
    and a variety of value-based payment models as well that will
    integrate with our model at the close of the transaction.
        However, let me shift now to a different perspective. As
    you heard earlier, I served as a provider executive CEO for
    many integrated delivery systems, in the State of North
    Carolina, quite frankly, for probably 15 years, so I know those
    delivery systems extremely well. I have keenly observed the
    combinations and consolidations happening on that front, so I
    am well aware of what is happening in that State, as well as 49
    other States, given the view that I have today from my perch as
    a health plan executive.
        What I can tell you about my lived experience in that world
    is that for the last 15 years, we were focused heavily on
    acquisitions, consolidations, purchasing hospitals, purchasing
    physician practices, all built under the premise that we are
    going to be clinically integrated.
        I would further submit that the buildout had a lot to do
    with negotiating better price. It was all about negotiating
    better price by way of delivering better quality.
        I would argue today in terms of our commitment to value
    payment, our commitment to new models of care delivery,
    supporting practitioners with data that gives them legitimate
    information to better manage care, I think today is a totally
    different day than what history suggests in terms of what the
    old story looked like versus what it looks like today and what
    it will look like going forward.
        I think competition is robust, but, more importantly, our
    alignment with providers is value-added to the new markets that
    we have come upon. Relative to whether it is small group, large
    group, ACA-related, it is all connected in terms of the value
    to the market.
        Senator Tillis. Thank you. I am sorry. My time has expired.
    If any of you have feedback on that, I would like to have that
    communicated back to my office. I would welcome it.
        Thank you, Mr. Chair.
        Chairman Lee. Senator Coons.
        Senator Coons. Thank you, Mr. Chairman and Ranking Member,
    for holding this hearing, and to all of you. I have had a
    chance to review much of your testimony, so I will be fairly
    brief given that a vote has just been called and this has
    already been a very long hearing for many of you.
        If I might, to Mr. Swedish, your testimony highlights some
    of the important quality initiatives and partnerships between
    Anthem and Cigna, and as someone who has been intimately aware
    of Cigna's work in terms of transparency and improving the
    patient outcomes and quality, how will these partnerships or
    programs either expand or increase after the merger or be
    negatively impacted by the merger? What kind of metrics will
    you be using to make sure that they continue and that they
    continue to have a positive impact on patient outcome?
        Mr. Swedish. Senator, thank you for the question, because I
    think it really just does speak to the future state--and future
    state with respect to how we envision it lays out a very strong
    model of building on the respective successes of both
    organizations.
        As I mentioned before, I believe, Cigna has built out a
    wonderful model in and around accountable care delivery
    methodologies. They have generated a situation where patients,
    their members, are more compliant with diabetes measures to the
    extent somewhere on the order of 25 percent improvement. They
    have witnessed a 45-percent lower medical cost trend versus the
    industry at large. That is a wonderful asset to capture in
    terms of blending with our own successes in like fashion with
    respect to how we have administered our services in the 14 Blue
    States that we oversee.
        Long story, short, I think the combination will be
    synergistic in nature, and clinical performance will be greatly
    advanced by way of one key asset combination: data, taking data
    repositories, respective data repositories, melding them
    together in order to create valued information for the provider
    community.
        I believe care delivery will ultimately get better because,
    number one, our stewardship of that data and the stewardship
    that we then administer in terms of our partnership with
    physicians will become more enhanced by virtue of the benefits
    and the strengths of both companies coming together clinically.
        Senator Coons. My last question, if I might. A number of
    you have talked about how the insurance market is either
    national or really local, and I think there is an enduring
    tension between the perspectives offered today about whether it
    should be looked at and measured nationally or locally. I am
    going to ask a very parochial concern, being from Delaware,
    because Anthem has about 100 folks doing data analysis and
    Cigna has about 500 folks who I fought very hard for, who are
    critical to the expatriate health insurance program that has
    been administered out of there.
        What sort of opportunities do you see, should there be a
    merger, post-merger for increasing your footprint in my home
    State? What sort of risks do you think there are to the
    significant employer base for my little State that your two
    companies represent? Do you think that given the lack of
    competition in the marketplace in Delaware and what a
    significant negative impact I think that has had in some ways,
    what opportunities do you think there might be for expanded
    opportunities on either the individual exchange or on other
    market segments?
        Mr. Swedish. Senator, I appreciate your comment about the
    workforce in Delaware. Let me first underscore that we are
    vitally concerned about all of our associates nationally. We
    really focus heavily on building a culture that is rooted in
    our commitment to creating value in the marketplace. I do want
    to State that on a national basis, national perspective. That
    is critically important in terms of our relationship and
    support of all of our associates.
        With respect to Delaware, I recognize that HealthCore is
    headquartered there, which is a division that is analytically
    driven, engaging with pharmaceutical enterprises to effectively
    analyze the benefit of pharmaceutical products that go to
    market, with about 100, 150 associates. With respect to Cigna's
    presence, they have an incredibly successful international
    outreach, i.e., going global, as you know. The number of
    associates probably approaches 500-plus.
        Our sense is that certainly will remain in Delaware. It is
    a critical contributor to the Delaware economy. We recognize
    that and, quite frankly, underscore the fact being a growth-
    oriented enterprise, we would expect both of those areas with
    respect to international services as well as research to
    continue to grow.
        Thank you.
        Senator Coons. Thank you.
        Thank you, Mr. Chair, and I would like to thank the panel.
        Chairman Lee. Thank you, Mr. Coons.
        Mr. Pollack, some industry observers have suggested that
    these mergers might provide some necessary and helpful
    countervailing market pressure to sort of balance out the
    widespread consolidation that is starting to occur among
    providers, specifically providers who are getting into the
    business of offering insurance plans. What is your response to
    that suggestion?
        Mr. Pollack. I think it is just the opposite. You know,
    right now the insurance field is already incredibly
    consolidated. We were talking earlier about barriers to entry,
    and there have been studies from both Kaiser--Kaiser Family
    Foundation and the Commonwealth Fund talking about how 97
    percent of the Medicare Advantage markets lack competition. If
    you look at the breadth of Blue Cross Blue Shield plans, in 40
    of the 50 States they are the largest plan. We think that you
    need to have continued robust competition, which leads to
    innovation, and we do not see how these deals promote that
    aspect of it.
        As for the provider-based plans, while they are out there
    and they are growing, they pale in comparison in terms of scale
    to what we have seen with regard to the commercial insurance
    company side of this environment. While the provider-based
    plans actually bring great value and get great quality ratings,
    it is still hard in the face of competition from some of these
    other commercial entities to, in fact, get into these markets.
    Very often you have to have a minimum number of lives, which it
    is sometimes very difficult for these provider-based plans to
    acquire.
        Chairman Lee. They do not weigh the same. That is one way
    of putting it.
        Mr. Pollack. Exactly.
        Chairman Lee. Okay. I want to get back to Mr. Bertolini and
    Mr. Swedish. I am sensing you wanted to respond to that. You
    can work that into your answer on this question. They are kind
    of connected. I have got questions for both of you. Both of
    your companies have represented that entry into health
    insurance markets is relatively easy. If that is the case, why
    not enter into the markets that Humana and Cigna are already
    in? Why not enter into those instead of buying those
    competitors? For example, why can't Aetna just expand its
    Medicare Advantage offerings instead of buying Humana? Why
    can't Anthem expand its services instead of buying Cigna? I
    would like your reaction to that and also just any thoughts you
    have got about whether new entrants are likely to remain in the
    marketplace, whether that makes a difference.
        Mr. Bertolini. Thank you, Mr. Chairman. I think the
    tradeoff as to whether or not to enter markets versus acquire
    markets is simply an economic discussion. How do we want to
    deploy our capital and how quickly do we want to get there?
        Aetna was going to spend the next 5 years getting into
    markets that covered 70 percent of the Medicare eligibles. Why
    is that important? Because seniors are now more portable. They
    need to move around, and they want to keep the kind of quality
    and benefits that we offer at the prices we offer to them,
    which in a lot of cases, more than half, are zero premium
    policies for full benefits.
        With this acquisition, when it closes, if appropriate, then
    we will be in markets covering 92 percent of the Medicare
    eligibles across the country so that they have that portability
    and are able to move around.
        Chairman Lee. Mr. Swedish.
        Mr. Swedish. I can probably echo some of the same comments,
    but with respect to being specific to our combination, you
    know, certainly we have spent considerable time analyzing the
    economics of the transaction, the value add to our members,
    but, more importantly, pivoting as an organization at a very
    fast pace relative to how fast the market is changing and the
    demands of the consumers are changing, whether it is a national
    account, small-group, individual. You know, any segment you
    want to look at, the turbulence, the speed of change in the
    marketplace necessitates a combination that brings new value to
    the marketplace. In that regard, we believe this economic
    combination makes a lot of sense for us because we can come to
    market faster, better, and then in turn create more value for
    the consumers. Otherwise, quite frankly, we are dragging with
    respect to the responsiveness that we believe is necessary to
    best serve the marketplace.
        Final analysis, we are going to craft and administer a
    transaction that truly is in the best interests of not only our
    consumers but also the business itself in terms of being a
    sustainable business going forward. We believe this combination
    creates both sustainability and support to the customer in
    equal fashion.
        Chairman Lee. Thank you. I have got additional questions,
    but in the interest of time, given that there has been another
    vote called and we have got to get to that vote, I am going to
    go ahead and adjourn the hearing, and we will submit any
    additional questions in writing.
        Chairman Lee. Senator Klobuchar, before we adjourn, do you
    have any additional remarks?
        Senator Klobuchar. No. I appreciate you holding this
    hearing. It is really important, and I assume we will have more
    to come. Thank you.
        Chairman Lee. Thanks to all of you for your participation.
    This has been very helpful. Thank you for being here today. We
    are adjourned.
        [Whereupon, at 12:13 p.m., the hearing was adjourned.]
        [Additional material submitted for the record follows.]

                                A P P E N D I X

    Miscellaneous submissions:

    U.S. PIRG, CFA Consumer Action....................................   193

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                    [all]