Health Insurance Mergers: Are Fee For Service Medicare and Medicare Managed Care in the Same Product Market?

Health care antitrust rarely makes front page news.  The recent surfacing of rumors of possible governmental challenges to a one or more of the pending health insurer mergers may offer a teachable moment, even if it is a below the fold moment.  The Aetna-Humana deal is mostly about consolidation in the market for commercial Medicare plans, after all. It offers an opportunity to consider how all insurers are not the same, how Medicare is changing, and how Medicare's multiple points of entry prove surprisingly inflexible to beneficiaries dissatisfied with their current choices.

The Aetna-Humana deal would combine our third and fifth biggest insurers and make any post-merger entity the largest provider of Medicare Advantage plans in the country. Both proponents of the deal and opponents concede less head-to-head competition in the Medicare Advantage marketplace would result.  And so we have it, whipsawed between the pro-deal "bigger is more efficient" and the anti-deal "bigger often means extracting monopoly rents" kinds of arguments, it is hard to know exactly what these mega-mergers would mean for consumers and the insured.  Part of this is because this level of concentration in health insurance markets is virtually unheard of. It is also partly because a more sophisticated understanding of who enrolls in which insurance products and why informs the view that different insurance products may actually help to define different insurance markets and those markets may have their own competitive dynamics and merger effects.

The consideration of Medicare Advantage as a distinct market from traditional Medicare is telling.  Although it is worth considering the interrelationship between the two markets, it is also true that Medicare Advantage and traditional Medicare offer very different products with regard to price point, scope of benefits, and choice of provider.  Medicare Advantage is a relatively tightly managed program, dominated by a few health insurers who can muster significant scale.  Traditional Medicare is far more diffuse, with a much broader universe of providers.

Analyzing Medicare as if it were a monolith in health care markets (as an insurer or payer) can be quite deceptive, particularly when comparing the universe of providers available in each kind of plan, but there are many other points of contrast. The interesting and untested premise behind an analysis highlighting this distinction is one that actually considers how many Medicare beneficiaries actually gravitate between the two kinds of plans (very few, it would seem) and how the structural organization of  traditional Medicare's late enrollment penalties or exclusions, particularly as applied to Medicare Supplemental Insurance ("Medigap"), can make such migration impossible for those needing Medigap's wraparound insurance. Medicare beneficiaries in some markets may not be able, practically, to vote with their feet to defeat any potential post-merger price increases by adopting a different model of Medicare. They are, practically speaking, locked in.

I am heartened to see hints of even an inkling of the infusion of knowledge of the  practical organization of the market (how does this really work for Medicare beneficiaries) into a theoretical analysis of competitive effects that does not match the actual lived experience of Medicare beneficiaries.


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