Anthem first to respond to merger challenges, government opposes quick trial

Two large insurance mergers–Cigna-Anthem and Aetna-Humana–have been hot topics since the deals were proposed. The latest hurdle, suits filed by the Department of Justice (DOJ), may be a bigger issue than anticipated, as the government argued against Anthem, Inc.’s request for a speedy trial. The DOJ argued that the issues at hand are more complex than other cases, requiring more time than the 88-day scheduling range Anthem requested.

The inevitable lawsuit 

On July 21, 2016, the DOJ filed lawsuits challenging both the Cigna-Anthem merger and the Aetna-Humana merger. Attorney General Loretta Lynch stated that the mergers would eliminate too much competition and, therefore, the motivation for insurers to lower their premiums and offer better benefits. Aetna and Humana both stated they would contest the suit, arguing that the deal would actually improve options for Medicare patients. These companies are two of the four largest Medicare Advantage providers. According to the DOJ, an Anthem-Cigna merger would result in only three insurers with networks that would sufficiently serve the country’s largest employers.

Cigna’s response to the suit was less robust, stating that if the deal closed at all, it would be sometime next year. The company is reviewing the merger agreement, which may require defense of the deal, and analyzing its options. Anthem took the position that the suit was a “step backwards” for consumers, but seemed open to a settlement.  A joint statement from Aetna and Humana suggested that some divestitures could preserve competition, but the government was doubtful.

The American Hospital Association (AHA) and the American Medical Association (AMA) believe that the suit protects consumers, and that fewer coverage options would undermine innovation. The Center for Healthcare Research & Transformation director noted that even if the deals reduced prices insurers pay to providers, consumers may not see any savings. She believes that the suits will be difficult for the companies to win. Failure would be costly for Aetna and Anthem, as the agreements state that Anthem would pay Cigna $1.85 billion and Aetna would pay Humana $1 billion in termination fees.

State responses

States are taking action on the suits as well. Eleven states, plus the District of Columbia, joined the DOJ’s challenge against the Cigna-Anthem merger, while eight states and D.C. joined to fight Aetna-Humana. Other state actions are pending as well, such as the New Hampshire Insurance Department’s is review of the Cigna-Anthem proposal. An AMA analysis found that the  merger would result in control of 64 percent of the state’s insurance market. According to the state, the two proceedings are separate, and the insurance commissioner still has the authority to act in the event that the lawsuit does not succeed. The state department is not yet prepared to hold hearings, and will wait to take action until the lawsuit is resolved.

Speedy trial

Anthem, the only company that has filed an answer in the lawsuits, requested that the judge provide a trial within 88 days, with a decision on the injunction coming within 35 days of the trial’s conclusion. The government strongly opposes such a quick timeline, as the case comes against the largest health care merger ever to be proposed. The DOJ finds that the case is more complex than another recent coal antitrust suit that was quickly resolved, which Anthem relied upon as an example in its answer.

When ACA costs are too high, consumers turn to short-term insurance

When prices for insurance under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) get too high, consumers are more often turning to short-term coverage as a more cost-effective option, according to a report by CBS News.  The monthly premium for a short-term plan is on average about $500 less for a family of three than that of a plan purchased on the ACA’s health insurance exchanges, which makes sort term coverage an attractive option for those who can’t afford ACA coverage.

On average, a family of three will pay a monthly premium of $283 for a short-term plan, which is about $500 less per month than coverage through a major medical plan, according to (non-ACA) online health insurance marketplace eHealth. Before the ACA, eHealth sold about 60,000 short-term policies per year, a number that more than doubled in 2014 and 2015, with approximately 140,000 policies sold over both years.

Lower costs, higher risks

While the cost of short-term plans may be more effective, consumers are making compromises in other areas. Some short-term plans lack coverage for prescription drugs, for example, and other exclude specialized coverage, such as maternity care. Most notably, unlike health insurance under the ACA, short-term policies refuse to cover preexisting conditions. Moreover, consumers must reapply for coverage annually and may be denied if their health care costs are too high—a concept that is also forbidden under the ACA.

“This is exactly the kind of coverage the ACA was designed to get rid of,” said Kaiser Family Foundation Senior Vice President Larry Levitt to the Wall Street Journal (WSJ). Consumer advocates worry that buyers do not understand the limits and risks involved with short-term policies, or that consumers do not realize they may qualify for subsidies that can dramatically reduce the cost of a plan purchased on the ACA marketplace.

Even though short-term plans such as these do not qualify as individual coverage under the ACA, triggering the tax penalty for lack of coverage, the cost of a short-term plan plus the tax penalty may still be less expensive than paying for a marketplace plan. In 2015, an individual who went without coverage for more than three months can expect to pay the higher of a percentage of his or her taxable income or a flat rate, with a maximum penalty of $975 for the 2015 tax year, CBS News reported.

Causing trouble for the ACA business

Short-term plans can put the ACA marketplaces at risk, as they can draw away healthy consumers who are needed to keep the marketplaces running as expected. Then, they add to the costs of ACA plans by buying coverage only when they have health needs. This can “cause some real problems for the market,” said Timothy S. Jost, a professor at Washington and Lee University, to WSJ. Increasingly, insurers, such as Anthem Inc. and UnitedHealth are beginning to sell short-term plans, saying that the plans fill gaps in coverage.