The Justice Department is gearing up for an exacting look at any proposed mergers among the nation’s top health-insurance companies, amid questions inside and outside the department about whether industry consolidation could suppress competition.
The five biggest health insurers have been circling one another for potential deals.Anthem Inc. has made public a $47.5 billion bid for Cigna Corp., which Cigna has so far rejected. Aetna Inc., meanwhile, has made a takeover proposal for Humana Inc.
If the insurers succeed in striking such deals, it would leave the industry topped by three big companies, each with annual revenue of more than $100 billion. UnitedHealth GroupInc., currently the largest health insurer, also recently made a takeover approach to Aetna.
Many of the mergers under discussion have the potential to raise antitrust concerns, a senior Justice Department official said, adding that health insurers considering such deals should do a careful antitrust risk-assessment of the transactions.
Antitrust enforcers have had initial discussions about how they would approach any insurance tie-ups, and they are preparing for the possibility they could face multiple deals simultaneously, this official said.
If there were a wave of mergers at once, the department would look at the deals collectively, rather than each one in isolation. Enforcers would try to determine what effect the deals could have on the marketplace, and pursue questions about whether they would benefit consumers, the official said.
The big insurers declined to comment on the antitrust scrutiny that any potential deals in the industry might face.
In a recent call with industry analysts, Anthem Chief Executive Joseph Swedish said a combination of his company with Cigna would have “the scale to drive greater efficiency and affordability for our customers,” and would be able to “accelerate improvements in the total cost of care.”
A spokeswoman for America’s Health Insurance Plans, the industry trade group, said health-plan combinations don’t increase premiums, and that insurers’ “focus is on making sure consumers have affordable coverage.”
The prospect of consolidation poses high stakes for the Obama administration, whose signature domestic policy legacy is the 2010 health-care law. Some aspects of the health law were designed to increase insurance-industry competition, including marketplaces for health coverage and the creation of new nonprofit cooperative health plans around the country.
But the law also includes provisions that may have helped inspire consolidation, at least indirectly. For instance, it requires insurers to spend a certain percentage of premiums on health care, which adds to the pressure to trim administrative costs,—a benefit insurers are likely to seek from merging.
A Wall Street Journal analysis from earlier this month found some combinations of the top health insurers could damp competition in certain markets around the country.
The law also contains policies encouraging health-care providers to move to forms of payment that involve tracking the care of groups of patients, aiming to save money and improve care. Providers say they need size and resources to transform health care, one of the driving sentiments behind recent consolidation by hospital groups and other health-care providers.
Just as the Justice Department is eyeing the health-insurance side of the equation, the Federal Trade Commission, which also has antitrust enforcement powers, has raised concerns about consolidation on the hospital side, challenging several mergers.
In fact, insurers are bulking up partly to face off against the larger hospital systems in negotiations about rates and payment models.
“All of this consolidation is about bargaining power,” said Glenn Melnick, a professor at the University of Southern California who specializes in health-care finance. He co-wrote a study published in the journal Health Affairs that suggested increased health-insurer consolidation could benefit consumers by pushing down hospital rates, “as long as health-plan markets remain competitive.”
Some research has linked having fewer health insurers to higher insurance rates.
“There’s no good evidence out there that scale is associated with lower premiums or improvements in plan quality,” said Leemore Dafny, a former FTC official who is a professor at Northwestern University’s Kellogg School of Management. Ms. Dafny, who co-wrote a paper tying greater competition in the health-law marketplaces to lower rates, said it isn’t clear insurers would pass on to consumers the benefits of any hospital discounts they achieve.
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