Will your premiums go up with fewer insurance companies?
The $37 billion megamerger announced this past weekend between two of the country's biggest health insurance companies, Aetna and Humana, is just one of several deals expected to reshape the health insurance landscape in the coming months in the wake of the Supreme Court's decision to affirm the Affordable Care Act, analysts say.
The question most people outside Wall Street care about - how these mergers will affect the rates paid by ordinary people - is a source of disagreement among those analysts. Some say consolidation will be bad for consumers. But others think it might ultimately have benefits for paying customers.
Either way, consumers won't see the effects for about a year because the health plans starting in 2016 are already in place.
The glass-half-empty view
It's hardly ever a good thing for consumers when there are fewer choices. A study published in the American Journal of Health Economics found that in the first year of the health insurance marketplaces, more insurers meant lower premiums. It also found that if all the insurers active in a state had participated in the first year of the marketplaces - the exchanges set up by the Affordable Care Act where people can compare and buy insurance - the premiums for one of the key plans would have been about 11 percent less expensive.
What's more, a 2012 study of the effects of a large national merger between Aetna and Prudential in 1999 found that premiums rose by seven percentage points.
"The evidence there shows that premiums rise when insurers consolidate. I'd love to see other evidence," said Leemore Dafny, a professor of strategy at the Kellogg School of Management at Northwestern University. "I would be sounding a questioning note and say the past hasn't demonstrated beneficial effects for consumers; tell me why the future is any different. I wouldn't say it can't be, but I would be asking tough questions, and I'm sure the regulators will."
The glass-half-full take
Several analysts said the consolidations underway in the health insurance industry could have an upside.
"Always, consumers should be wary when sellers gain market power," said Katherine Hempstead, director of the Robert Wood Johnson Foundation's work on health insurance coverage. But she added: "There are a couple reasons not to panic. One is that the business is really regulated ... Their rates are scrutinized, and they can't just charge whatever they what."
The Affordable Care Act fundamentally changed the tactics for insurance companies trying to make money. The law limits how much insurers can profit from the individual plans they offer, which means that to make money, they have begun to focus on cutting administrative costs - something they can do by serving more people. And as the companies get bigger and have more members, they will have more clout when negotiating prices with hospitals and providers.
Hempstead added that although these big companies are national carriers, health insurance remains a local business. That means within a given geographical area, there will be a different mix of insurers, and the competitive pressures in that particular marketplace will help determine prices.
Even if the bigger companies can become more efficient, will they pass those savings on to consumers? A number of experts, including California's top insurance regulator, have said they are doubtful, based on historical patterns. But Vishnu Lekraj, a senior analyst at Morningstar, said the consolidation shouldn't result in big premium increases.
"Theoretically, what it would do is curb the growth in premiums over time, because the companies are going to become more efficient and will be able to negotiate better reimbursement terms with hospitals and doctors" Lekraj said.
Figuring out who is right may be a waiting game. In the meantime, many people are seeing their health insurance premiums rise. The rates that insurance companies have sought for 2016 are up considerably in some markets - by as much as 20 to 40 percent. A Kaiser Family Foundation study of 11 major cities found that the prices of the two cheapest plans in the marketplace have increased modestly, by 4.4 percent, for 2016.