2016 Health Insurer Merger Frenzy 115
In response to concerns that the mergers will lead to lack of competition, insurers argue those concerns will be offset by new entrants into the market. CEOs of major insurers argue new insurers are entering the market and creating new competition. 127 In reality, smaller companies wanting to play will likely be unable to compete with the size, scope, and technology of the mega-insurers, which will further reduce existing competition and act as a barrier for new insurers to enter the market. We are already seeing a reduction in plan offerings in 2016, where there will be twenty-five percent fewer plans available than in 2015 and forty percent fewer preferred provider organization plans available. 128 The health insurance market has been labeled one of the most difficult markets to enter. 129 The ACA incentivized the participation of nonprofit insurance co-operatives known as Consumer Operated and Oriented Plans (CO-OP) through subsidized loans. 130 High capital requirements and burdensome tasks of building provider networks, however, have discouraged new health plans from entering into the private health insurance market. 131 Instead, health plans are entering into the private health insurance market through acquisition. 132 Yet many new health plans, including those incentivized under the ACA, specifically CO-OPs, have struggled and closed. 133 This is primarily because new companies face substantial challenges associated with the time and resources required to negotiate competitive reimbursement rates, build relationships with provider networks, and establish a reputation with consumers. 134 Furthermore, MLR constraints will limit the amount a new insurer can spend on marketing to providers, employers, and consumers. In contrast, mega-insurers will have the economies of scale in all of these areas and more. 135
C. Consolidation’s Impact on the Medicare Advantage Plan Market
Medicare Advantage was created in the 1970s to allow Medicare beneficiaries to receive Medicare benefits through private health plans. 136
127. Robert Pear, Health Insurers Seeking Mergers Play Down Antitrust Concerns, N. Y. TIMES (Sept. 22, 2015), http://www.nytimes.com/2015/09/23/business/aetna-anthem- congress-health-insurers-mergers.html?_r= 1. 128. Balto, supra note 106. 129. Herman, Senators Grill CEOs, supra note 110. 130. Dafny et al., supra note 123, at 1. 131. Dafny, supra note 22. 132. Id. 133. Herman, Senators Grill CEOs, supra note 110. 134. Dafny et al., supra note 123. 135. Id. 136. Medicare Advantage Fact Sheet, KAISER FAM. FOUND. (June 29, 2015), http://kff.org/medicare/fact-sheet/medicare-advantage/.