[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
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