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BachThe recent mega-mergers of health insurers, if approved, stand to shake up competition across the industry-but analysis shows the impact will not be felt uniformly.  Each insurer in the prospective mergers has a unique mix of membership across geographic markets and across lines of business, just as provider dynamics vary across geographies.  This will lead to unique market-by-market dynamics, before and after the mergers. 

 Three major forces behind healthcare payer consolidation

	A national analysis based on HealthLeaders Interstudy (HLIS) data shows that before the three major mergers-

, Centene-Health Net-roughly one-third of the U.S. population sits in markets where the commercial sector is considered highly concentrated per published federal guidelines.  If all three of these mergers go through, half of the U.S. population will then reside in markets with highly concentrated commercial sectors.

	Normally, such a shift would cause alarm, but taking the national view ignores the important market-by-market competitive dynamics that should be considered.  Healthcare and competition is largely local, making analysis at the metropolitan statistical area (MSA) level more sensible. 

	A deeper dive into the data suggests that in MSAs covering 70% of U.S. lives, these payers are not the market leader and the mergers are not enough to overtake the top Commercial player by membership.  Markets where the mergers unseat the Commercial share leader happens in markets covering less than 8% of U.S. lives, but only about half of those markets ends up with the new leader having more than a 5% membership advantage. These numbers imply that in most markets the mergers are creating more formidable competition for the top placed incumbent-typically a Blue, UHG, or Kaiser.   

	The data also shows that about 20% of U.S. residents live in an MSA where one of these six insurers already held the top Commercial share position; the Commercial market was already moderately or highly concentrated; and the mergers would materially further concentrate market power per federal guidelines.

NEXT: How will regulators respond to the mergers? 

	There are also a handful of markets like Dallas, Tulsa, and Little Rock where market shares for the payers of interest are more balanced and letting either Aetna-Humana or Anthem-Cigna progress may be palatable but letting both progress significantly consolidates the market.  How the regulators will approach those instances is unclear.

	Given that market pressures will likely lead to more industry consolidation, payers around the country will be looking at these cases to see how regulators respond. Will individual markets become critical issues in the regulatory review? Will they look to sell off or discontinue the book of business from one partner in these markets?  Will the mergers be allowed but come with market-specific conditions, such as rate increase limits, investments in the community, or other creative solutions?  Time will tell.

The Anthem-Cigna merger: 10 things to know

	Ultimately what healthcare needs is to break down barriers to improving costs and quality. It is certainly true that mergers for scale can be anticompetitive, but in this case, there may be a silver lining in that driving scale can also push the transformation to value. 

	Reducing the number of payer partners with whom a provider must contract shifts the critical mass of their business and reduces complexity. Meanwhile scalable investments in consumer tools, advisory services and analytics will enable plans to better help the whole ecosystem, manage care, and engage and influence consumer behavior. Those are the market forces that are worth watching.

	It should be noted that this analysis uses the most comprehensive vended data set on the market, but that data set is not wholly complete for all US markets for the payers of interest.  The FTC will have the benefit of receiving more detailed data directly from the insurers and will be drawing its conclusions from that data set.

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A deeper dive into the proposed payer mergers reveals how they could impact market dynamics.

Terry Stone

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