Insurance commissioners vital in investigating current flood of health insurance mergers

Back in September, both the House and the Senate held hearings on the current proposed health insurance mergers of Aetna and Humana and Anthem and Cigna. With fanfare, executives from Aetna and Anthem, key industry experts, public interest advocates, and others testified about the potential competitive concerns, or perhaps, benefits, of reducing the number of major competitors in the industry from five to three. Since the deals had just been announced, the inquiries scratched the surface, providing a needed dose of transparency on the complicated issues raised. 

But, Congress made a serious mistake. The congressmen acted as if the only cop on the beat was the Antitrust Division of the Department of Justice (DOJ). They never mentioned the state insurance commissioners. Not once. Congress simply missed the boat. 

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As anybody with actual world experience in insurance knows, the real expertise in health insurance resides with the state insurance commissioners. Through the insurance commissioner’s department, each state has developed substantial expertise to make sure that health insurance is run in a sound and efficient fashion, and that consumers receive the benefits of the market. What Congress missed was the vital role that the insurance commissioners must and will have in taking a critical look at the mergers of Aetna-Humana and Anthem-Cigna.  There are five essential factors that make each state’s insurance commissioner’s inquiry every bit as critical as the DOJ investigation.

First: authority. An insurance commissioner has the authority under the law to both investigate and block mergers.  As part of that analysis, the insurance commissioner must determine whether a merger is anticompetitive, that is, whether it will lead to higher premiums or less service.

Second: expertise. The DOJ looks at health insurance markets only when there is a particular claim of anticompetitive conduct or a merger.  Those investigations are episodic, extremely focused, and appropriately myopic. The DOJ's expertise is based on about a handful of significant merger or conduct investigations. In contrast, the insurance commissioners regulate and examine health insurance markets on a daily basis. They have brought significant enforcement actions in a wide variety of areas affecting the package of benefits that consumers receive.

Third: process and transparency.  The DOJ process is extensive but it is entirely confidential.  The public has little insight into the process and has difficulty weighing in with DOJ.  The insurance commissioner process is much more accessible and transparent.  The insurance commissioner holds public hearings on the merger in which any third party can participate, submit testimony, and examine evidence.  A significant record is developed on the impact of the merger and any party can examine that record.  The commissioner can hire its own expert witnesses to provide expert testimony.  And, perhaps most important for the public, the commissioner must issue a formal decision at the end of the process. 

Transparency and due process can create an investigation in which the public will be fully aware of the potential competitive concerns and understand why a decision is made. As Justice Brandeis once said, “transparency is the best disinfectant.”

Fourth: remedial powers. The insurance commissioners have very broad powers to remedy the potential competitive and consumer protection concerns arising out of a merger.    Commissioners have the ability to enact significant consumer protections within health insurance markets, for example setting benchmark prices, ensuring that both merging parties continue to offer competing insurance products within the state, employing a global budget so that overall spending is constrained, and rigorous rate review for the merging entities.

Finally: the relationship with consumers. All insurance is local, and local regulators have the closest relationship with consumers. Insurance commissioners have firsthand experience with the individual insurers in their states, their reliability, and their compliance record.

State insurance commissioners are vital, and often step in when the DOJ or other enforcers, such as a state’s attorney general, fall short. For example, in 2009 after the DOJ effectively cleared Highmark's acquisition of Independence Blue Cross, the Pennsylvania Insurance Commissioner challenged the merger leading the parties to ultimately abandon the transaction. 

This provides a simple and straightforward lesson – insurance commissioners have at least as much authority as the DOJ that Congress is relying on, and more insurance expertise than the department.  Both Congress and the DOJ are making a mistake if they do not recognize the role a state’s insurance commissioner will play an essential role in determining whether these mergers benefit consumers or should be rejected.

Balto served as policy director at the Federal Trade Commission and as an attorney in the Justice Department’s antitrust division.