Michael M. DeLong and James Bradford DeLong
Beating America's Health-Insurance Monopolists: The Need for Competition--and the Need for a Recognition of the Need for Competition
With the coming of the Affordable Care Act to the United States, the importance of effective and successful antitrust enforcement in health insurance greatly increased. As Berkeley economics professor Aaron Edlin puts it, the competitor "I'm just not going to buy this" is always there, and is a competitor that no firm can either collude with or buy. But the Affordable Care Act requires that individuals purchase health insurance. It thus creates for a monopolist a vertical demand curve--meaning that the monopoly profits that can be earned through a monopoly or shared through collusion are enormous, and the consequent harm to consumer well-being is enormous as well.
And so in 2015 the insurance companies Anthem and Cigna and Aetna and Humana decided, both sets, to try to see what they could do: Could they merge? Could they reduce the number of private national health insurers from five to three, with consequent increases in market power and rents extracted?
At first it looked as though they could. The standard arguments that the mergers would produce such enormous productive efficiencies that consumers would actually benefit were trotted out. Never mind that the Center for American Progress's estimates are that in the Medicare Advantage health insurance market alone competition between Aetna and Humana lowers Aetna’s annual premiums by about $200 and lowers Humana’s annual premiums by about $50. Ohio Governor John Kasich's Department of Insurance secretly approved the Aetna-Humana merger, and then kept its decision hidden for over a month. Illinois, Iowa, Kentucky, and North Carolina were just a few of the states in which insurance regulators did not believe that even hearings about the mergers were warranted.
Some of this was simple partisanship: Never mind that the individual mandate to purchase insurance and the Health Insurance Exchanges on which to purchase them were originally the ideas of the Republican Party's Heritage Foundation and were the centerpiece of Republican Mitt Romney's mid-2000s health care reform in Massachusetts. Once these become incorporated as key elements in Democratic Obamacare, many Republicans no longer cared whether they worked or simply provided tools monopoly insurance companies could use to extract more rents.
Rather more of it, however, was lobbying: the appeals to social affinity with regulators and politicians by people they used to work beside and still go to cocktail parties with; the provision of plausible-sounding arguments and talking points; understandings that campaign contributions and Super PAC money will flow to politicians whose policies reward discrete, organized interests even if they are very bad for society as a whole--as long as those harmed are the amorphous, unorganized consumers of America.
The national-scale lobbying arms of Anthem, Cigna, Aetna, and Humana are large and well-funded. And on the other side? For the past nine months, the other side was the younger one of us: Michael DeLong, as Director of the Coalition to Protect Patient Choice, in an SEIU-funded position and in charge of getting facts and figures about the mergers out to state and local consumer groups who could submit comments to and might be asked to testify before hearings, if there were to be hearings.
Across the country, state and local consumer groups were (a) very worried about potential monopolization of health insurance but (b) underfunded and underbriefed, without the expertise to assess the likely consequences of and make the valid technocratic arguments against the mergers. And the shoestring CPPC was hard-pressed to fill the knowledge and analysis gap. It submitted comments on the mergers in California, Delaware, Florida, Georgia, Illinois, Iowa, Indiana, Missouri, New York, Ohio, Virginia, and Wisconsin. It testified in hearings in California, Delaware, Florida, Missouri, New York, Virginia, and Wisconsin. It brought consumer groups and unions together across the country and armed them with facts and figures. But the overwhelming reality was one of being massively outgunned.
In one of the worst pieces ever to appear in the Washington Post, its staff reporter Robert Samuelson claimed that the disputes among lobbyists in America today take place on a level playing field:
A myth is that lobbying favors the wealthy.... The facts contradict that.... If the rich were all powerful, their taxes would be much lower.... The poor and middle class do have powerful advocates. To name three: AARP for retirees; the AFL-CIO for unionized workers; the Center on Budget and Policy Priorities for the poor...
An unbiased observer would grant the power of the AARP: its members' concerns--or at least the AARP's version of those concerns--are heard. An unbiased observer would, however, note that Robert Samuelson is talking about the AFL-CIO as it existed in the 1950s and not as it is today. And an unbiased observer would laugh at the idea that the CBPP--much as all such admire Bob Greenstein and his staff and admire the work they do--and its fellows are even playing in the same legislative influence game as the lobbying arms of Anthem, Cigna, Aetna, Humana, and their ilk.
Do not get us wrong: the CPPC performed a very useful and worthy task, and did great work. Most useful, perhaps, was bringing to open-minded regulators' attention the past consumer protection violations and subsequent failures-to-fix of Anthem, Cigna, Aetna, and Humana. But we could have used more manpower and background information. A world in which consumer groups in many states do not have even one full-time staff member familiar with consumer antitrust concerns is not one in which the lobbying playing field is level.
On July 21st, the U.S. Department of Justice filed lawsuits against the companies to attempt to prevent the mergers, and the cases are now in federal court. We very much hope this story will have a happy ending, and that the courts will recognize that these mergers are anticompetitive and immensely harmful to consumers.