By Robert Reich
The Supreme Court’s recent blessing of Obamacare has
precipitated a rush among the nation’s biggest health insurers to consolidate
into two or three behemoths.
The result will be good for their shareholders and executives,
but bad for the rest of us – who will pay through the nose for the health
insurance we need.
We have another choice, but before I get to it let me give you
some background.
Last week, Aetna announced it would spend $35 billion to buy
rival Humana in a deal that will create the second-largest health insurer in the nation, with 33 million members.
The combination will claim a large share of the insurance market
in many states – 88 percent in Kansas and 58 percent in Iowa, for example.
A week before Aetna’s announcement, Anthem disclosed
its $47 billion offer for giant insurer Cigna. If
the deal goes through, the combined firm will become the largest health insurer
in America.
Meanwhile, middle-sized and small insurers are being gobbled up.
Centene just announced a $6.3 billion deal to acquire Health Net. Earlier this year Anthem bought
Simply Healthcare Holdings for $800 million.
Executives say these combinations will make their companies more
efficient, allowing them to gain economies of scale and squeeze waste out of
the system.
This is what big companies always say when they acquire rivals.
Their real purpose is to give the giant health insurers more bargaining leverage over employees, consumers, state regulators, and healthcare providers (which have also been consolidating).
The big health insurers have money to make these
acquisitions because their Medicare businesses have been growing and Obamacare
is bringing in hundreds of thousands of new customers. They’ve also
been cutting payrolls and squeezing more work out of their employees.
This is also why their stock values have skyrocketed. A few months ago
the Standard & Poor’s (S&P) 500 Managed Health Care Index hit
its highest level in more than twenty years. Since 2010, the biggest
for-profit insurers have outperformed the entire S&P 500.
Insurers are seeking rate hikes of 20 to 40 percent for next year because they think they already have
enough economic and political clout to get them.
That’s not what they’re telling federal and state regulators, of
course. They say rate increases are necessary because people
enrolling in Obamacare are sicker than they expected, and they’re losing money.
Remember, this an industry with rising share values and wads of
cash for mergers and acquisitions.
It also has enough dough to bestow huge pay packages
on its top executives. The CEOs of the five largest for-profit health insurance
companies each raked in $10 to $15 million last year.
After the mergers, the biggest insurers will have even larger
profits, higher share values, and fatter pay packages for their top brass.
There’s abundant evidence that when health insurers merge,
premiums rise. For example, Leemore Dafny, a professor at the Kellogg School of
Management at Northwestern University, and her two co-authors, found that after Aetna merged with Prudential
HealthCare in 1999, premiums rose 7 percent higher than had the merger not
occurred.
The problem isn’t Obamacare. The real problem is the current
patchwork of state insurance regulations, insurance commissioners, and federal
regulators can’t stop the tidal wave of mergers, or limit the
economic and political power of the emerging giants.
Which is why, ultimately, American will have to make a choice.
If we continue in the direction we’re headed we’ll soon have a
health insurance system dominated by two or three mammoth for-profit
corporations capable of squeezing employees and consumers for all they’re worth
– and handing over the profits to their shareholders and executives.
The alternative is a government-run single payer system – such
as is in place in almost every other advanced economy – dedicated to lower
premiums and better care.
Which do you prefer?
ROBERT B. REICH, Chancellor’s Professor of
Public Policy at the University of California at Berkeley and Senior Fellow at
the Blum Center for Developing Economies, was Secretary of Labor in the Clinton
administration. Time Magazine named him one of the ten most effective cabinet
secretaries of the twentieth century. He has written thirteen books, including
the best sellers “Aftershock" and “The Work of Nations." His latest,
"Beyond Outrage," is now out in paperback. He is also a founding
editor of the American Prospect magazine and chairman of Common Cause. His new
film, "Inequality for All," is now available on Netflix, iTunes, DVD,
and On Demand.
