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Private Health Insurers Seek To Maintain Power By Merging Before Obamacare Takes Effect

By Tara Culp-Ressler on September 4, 2012 at 5:00 pm

"Private Health Insurers Seek To Maintain Power By Merging Before Obamacare Takes Effect"

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Although Paul Ryan touts a plan for Medicare that would expand the role of private insurers, studies show the private insurance industry isn’t necessarily friendly to the American consumers who seek quality and affordable health care. A Washington Post column points out that the health insurance market, which is already set up to allow insurers to build monopolies that limit consumer choice and drive up prices, may now use mergers to maintain their outsized influence before the health reform law fully takes effect:

Now, with the health insurance industry near the top of its profit cycles and Obamacare about to add tens of millions of new people to the insurance pool and another wave of consolidation hitting the industry, [Coventry Chairman Allen Wise] has decided it’s time to do what he meant to do all along: sell Coventry to an industry giant for a 20 percent premium over the market price.

Besides delivering a bonanza for Wise and his tight-knit crew of directors and executives, the $7.3 billion purchase makes lots of sense for Aetna. The Hartford-based insurer is one of the four dominant players in the market for managing health plans for large and medium-size businesses, but it has had trouble breaking into the markets where Coventry does business: the individual and small group market plus managed-care plans under Medicare and Medicaid — the very markets that are expected to grow rapidly in coming years.

But a deal that is a boon to Coventry and Aetna shareholders is bad news for the rest of us, reducing the potential for greater competition in the health-care sector at the very time that the country is looking to competition to improve the quality of care and bring runaway costs under control.

According to a Kaiser Family Foundation study, health insurance competition is already so limited that in 30 states, the largest insurer controls more than half of the individual and small-business market — the same market that the Medicare and Medicaid programs fit into. On a national scale, the average number of serious competitors in each state is just four different insurance providers. That means hospitals are often able to negotiate prices that are 50 to 100 percent higher than the costs under Medicare and Medicaid.

The health insurance exchanges set up by the Affordable Care Act seek to enhance competition between health care providers, ultimately aiming to provide better quality of care by facilitating more choice within the market. However, big health insurers like Coventry will undermine that goal if they merge before Obamacare’s provisions fully go into effect next year. The insurance industry’s power plays underscores the need for expanding access to programs like Medicaid and Medicare. Nevertheless, Republican governors across the country have already pledged to reject federal funds to set up health insurance exchanges, despite the potentially catastrophic effects for their state’s low-income residents who already struggle to afford quality care.

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