Must-Read: Paul von Ebers: Mega Health Insurance Mergers: Is Bigger Really Better?

Must-Read: Paul von Ebers: Mega Health Insurance Mergers: Is Bigger Really Better?: “Health insurance… the announcement of three large mergers: Aetna/Humana, Anthem/Cigna, and Centene/HealthNet…

…But many benefits of megamergers put forward by these companies will not materialize, and there will be few benefits for consumers…. Scale economies, where fixed assets and overhead decrease with firm size, are very uncertain in health insurance mergers…. Studies in other industries suggest that even when economies of scale exist, the advantages dissipate with very large company sizes. Since administrative costs are a small portion of health insurance prices (10 to 15 percent, on average) it would take a large reduction in administrative costs to create a meaningful price reduction. For Aetna, this shouldn’t come as news….

Meanwhile, the American Hospital Association and the American Medical Association are worried that mega insurers will have more negotiating leverage in provider contracts with hospitals and doctors. The reality is more nuanced…. The impact of the Anthem/Cigna will depend on particular state circumstances. Anthem is the dominant insurer in states where it has the Blue brands and it usually pays lower prices for health care in those states. Anthem also has access to the Blue national network, which also generally pays lower prices. If Anthem converts the Cigna business to the Blue brands in those states, current Cigna customers will have lower medical costs…. Consolidation will somewhat increase the leverage mega insurers have with hospitals and doctors, but not as much as many expect…