Much has been written about the proposed Aetna-Humana merger. It's certainly been a top local story, with thousands of Humana employees impacted by the deal. As physicians, we need to consider the implications of the $35 billion acquisition of Humana by Aetna and the $48 billion acquisition of Cigna by Anthem for our patients.
Mergers and acquisitions have heralded changes in the health insurance industry during the last 20 years. These mergers have significantly reduced the number of insurers and concentrated their market share advantage in a number of metropolitan areas. Why should we as physicians care?
The risk we and our patients face is that insurance company monopolies may develop. A few companies with large market share can control prices they charge for health insurance simply by eliminating competition. With only a limited number of insurance sellers, patients have fewer choices in selecting a health insurance product. The Affordable Care Act has worsened this trend. By setting a minimum standard for plans that must all include certain ACA mandated features, insurance buyers must often pay for features they do not require. These essential health benefits, such as maternity care or mental health services, are not really essential for everyone, but by increasing the size of the risk pool, the cost can be spread out over more covered persons. Unfortunately, if you didn't need the essential service in the first place, you are still paying more for something that you didn't need. By mandating certain standards, the ACA has worked to reduce competition.
Competition in health care is a good thing. From car manufacturers to hotel chains, competition ensures that we can get good value for the money, or that we "get what we pay for." When competition is eliminated, we're left with the postal service or satellite radio providers - not industries that have shown downward pricing trends.
One of the lecturers in my MBA studies was Alain Enthoven, the health care economist. He has been around for many years, and in his early career was an assistant secretary of defense under Robert McNamara in the Johnson Administration during the 1960s. His forte was systems analysis, and he applied this approach in an attempt to bring cost effectiveness to the Department of Defense. He became one of the originators of "Managed Competition," a system that limits costs by fostering competition between hospitals, insurers and health care providers. It is not a panacea but has been looked at by multiple presidential administrations, both Democratic and Republican, since President Carter's time. Enthoven went on to author the Dutch health care revolution in 2006, which combined a universal mandate for health care coverage with managed competition between providers and insurers. The Dutch system puts a priority on the relationship between the patient and physician. I studied this system in Amsterdam shortly after its adoption, and while there are still many challenges, it is an alternative to our present system that may show promise.
Enthoven's ideas are still timely, though, in that he provides a different viewpoint about the implementation of the Affordable Care Act. He is concerned that the ACA does little to address increasing health care expenditures, other than taxing high cost plans. The initial premise of the ACA was to expand health care for uninsured Americans, a noble goal. Unfortunately, health insurance does not equal health care. The Medicare pilot programs started under the ACA promised development of better payment models, but results have been mixed at best. While we've had health insurance reform, we haven't necessarily seen health care improvement. Such are the challenges as we move forward under the ACA.
A different problem is also emerging under the consolidation of health insurance companies - that of the formation of a monopsony. In contrast to a monopoly, where there is a single seller of goods or services, a monopsony exists when there is a single buyer. We're starting to feel the effects of this in health care, as physicians are all sellers of health care. If the number of buyers of our services is reduced enough, we lose our ability to be independent. We would be unable to bargain for the reimbursement for our services, as the limited number of buyers would be able to set the price that is paid. Carried to the extreme, the monopsony would exist as a single payer health care system.
In a market where only two or three insurers exist, what happens if a physician is dropped by a health plan? Marius Schwartz, the economics director of enforcement of the antitrust division of the Department of Justice (which must approve health insurer mergers), said "Unlike many commodities, such as oil which can be left in the ground, physicians' time cannot be stored. Therefore, if a physician cannot replace lost patients sufficiently fast, or divert time to comparably productive uses, the physician will incur a significant and irrevocable loss if terminated...." If the insurance market contracts sufficiently, patients and physicians alike will suffer. By the way, Mr. Schwartz's remarks were made in 1999 when the DOJ was reviewing the Aetna-Prudential merger. What was true then is even truer today.
Robert Couch, MD, MBA, is the emergency department medical director at Norton Audubon Hospital and the founder of Southern Emergency Medical Specialists, PSC.