DAVID BALTO LAW OFFICES OF DAVID A. BALTO 1325 G Street, NW Suite 500 Washington, DC Health Insurance Merger Wave: Why Consumers should be Concerned and What to do About It 1

Quote from Senator Barack Obama to the American Antitrust Institute “The consequences of lax enforcement for consumers are clear. Take health care, for example. There have been over 400 health care mergers in the last 10 years. The American Medical Association reports that 95% of insurance markets in the United States are now highly concentrated and the number of insurers has fallen by just under 20% since These changes were supposed to make the industry more efficient, but instead premiums have skyrocketed, increasing over 87% over the past six years. As President, I will direct my administration to reinvigorate antitrust enforcement. It will step up review of merger activity and take effective action to stop or restructure those mergers that are likely to harm consumer welfare, while quickly clearing those that do not.” 2

Topics of Discussion (I) Anthem-Cigna and Aetna-Humana Mergers (II) Enforcers & Agency Regulatory Review (III) Signs of Good Advocacy (IV) Our Actions Taken So Far 3

I: Anthem-Cigna and Aetna-Humana Anthem-Cigna  $54 billion transaction, 53 million beneficiaries combined  Operation of different insurance products in all 50 states  Considerable overlap in private insurance markets  According to the American Hospital Association, the merger will reduce competition for private insurance in 817 metropolitan statistical areas  Analysis by Goldman Sachs finds that the combined entity will have a 51% market share for “national customers ”  Anthem is a part of the Blues– the two-thirds rule  Two-thirds of Anthem’s annual revenue must be generated by services offered under the Blue mark  Will lead to a reduction in competition between Cigna and Blue plans 4

I: Anthem-Cigna and Aetna-Humana Aetna-Humana  $37 billion transaction, 37 million beneficiaries combined—list includes private insurance, Medicaid managed care, and Medicare Advantage  Significant overlaps in Medicare Part D Prescription plans  Combined over 6 million beneficiaries in stand alone and Medicare Advantage PDPs  Medicare Advantage– 1,945 plans total, 30% are Aetna or Humana  Combined 4.4 million beneficiaries (#2 and #4 in the market), overlap in 1,658 counties  Over 50 percent market share in 39 different counties that have at least 10,000+ Medicare Advantage enrollees (Kaiser Family Foundation) 5

I: Anthem-Cigna and Aetna-Humana 6

II: Enforcers & Agency Regulatory Review Review will be based on DOJ/FTC 2010 Merger Guidelines. DOJ will consider effects on competition.  Merger enforcement should stop competitive problems when they are just beginning.  Mergers can be challenged only if they have potential effect of “substantially lessening competition.”  This means mergers must make competition significantly worse by giving merged firms the power to raise price, reduce output, or lower quality.  Views of customers/consumers are very important. 7

II: Enforcers & Agency Regulatory Review State Attorneys General are also investigating mergers—15 of them have joined DOJ probe. Among them are Connecticut, Florida, Iowa, Massachusetts, and Tennessee AGs. If merger is deemed anticompetitive, Attorneys General can bring lawsuits on behalf of state residents under federal antitrust law. States can seek documents from parties, depose parties, and interview third parties and customers. In some cases, state AGs will file suit against merging parties even if DOJ does not. 8

II: Enforcers & Agency Regulatory Review Insurance commissioners can challenge mergers. 26 commissioners currently reviewing health insurance mergers Insurance commissioners can block mergers if they substantially lessen competition. Insurance commissioners can block mergers based on other factors including market concentration and if the merger is not in public interest. Review process is public and transparent, but same review powers as DOJ/AGs. Insurance commissioners will also hold public hearings, allowing interested parties to voice concerns. Commissioners can utilize remedies beyond DOJ/AGs to ensure markets remain competitive. 9

III: Signs of Good Advocacy Public Interest Merger Advocacy Tips Consumers are Key: Agencies are more likely to oppose a merger where there are consumer complaints. Key Inquiry: How does the merger make the market worse? In order to raise concerns about a merger, must show that the merger is making competition worse in some significant fashion and explain how and why. 10

III: Signs of Good Advocacy Timing: Like voting, advocate early and often. Information: Give agencies credible and well supported information, especially consumer concerns and information supported by economic evidence or documents. Influence Officials: Not only speak to staff but engage senior officials, including insurance commissioners. Legislature: Contact members of Congress or the state legislature, organize letters and hearings. 11

III. Signs of Good Advocacy Have an endgame solution: What do you want to happen? Want competition to be “restored.”  DOJ has relied on divestitures, BUT being called into question by many including the American Antitrust Institute.  Insurance commissioners can block the deals or request remedies including regulations like price controls. Cultivate relationships: Have contacts in different agencies (DOJ/AG/DOI) who focus on your issues. Keep them informed and updated. 12

III. Signs of Good Advocacy Does Consumer Advocacy in Mergers Work? Yes and and 13

IV: Our Actions So Far Critical to engage in consumer review at every level, views of consumers are very important We have submitted comments expressing concern about these mergers on behalf of consumer groups and unions in various states-- Florida, Virginia, California, New York, and Ohio Comments stress adverse effects of mergers. Mergers will reduce competition, result in higher costs for consumers, limit consumer choice. Promised efficiencies unlikely to help consumers. Entry to offset harm is suspect.  Are also mobilizing consumer groups, unions, and other interested parties to raise concerns about these mergers  Tracking developments in other states. 14

The Coalition to Protect Patient Choice 15

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Conclusion: Questions? 17