Health insurance company Anthem has an agreement in place to acquire Cigna, a $54 billion business deal that would create the largest health insurance provider in the country. The combined company would have more than 53 million members, surpassing UnitedHealth Group. If the deal passes muster with regulators, the combined company would also become the California’s largest health insurance provider, surpassing Kaiser Permanente’s 7.3 million members, according to The Los Angeles Times. However, industry consolidation is already drawing scrutiny from some economists and politicians who expect that a Cigna-Anthem Merger would hurt consumers. But a closer look at the economics of health insurance shows that such financial outcomes are far from clear.

How will the Cigna-Anthem merger affect patients' health care?

Basic economics seems to suggest that when two large rivals merge, competition in the market decreases and prices rise. But these two companies are quick to point out that this is not the case in the health care industry.

The Pros and Cons of Merging

Not surprisingly, Anthem frames the deal as consumer friendly. The company says that joining forces with Cigna would eliminate any duplication in overlapping services while increasing efficiencies, leading to as much as $2 billion in savings.

But a merger will reduce the number of providers available to employers, who provide the vast majority of insurance plans available to Americans. The shrinking number of providers concerns employers. The Times cites an Aon Hewitt survey showing that 46 percent of employers have a negative view of health insurer consolidation, which they fear would result in fewer choices for them and their employees.

Why could health insurance be an exception?

Under typical economic circumstances, reducing the number of companies in a market reduces competition. With reduced competition, the service providers have more market power to raise prices.

But it doesn’t necessarily work that way in the health insurance market. Health insurance companies aren’t competing against each other when they set their rates. Insurers set their rates after negotiating prices with doctors, hospitals, and pharmaceutical companies. Reducing the number of insurance companies increases the bargaining and pricing power that insurers have during negotiations. In theory, when there are fewer insurance companies, these companies will have more leverage against health care providers, which means they should be able to get better rates. If that happens, insurers could in turn offer better rates for patients.

Health insurers also tend to be regional. The number of providers in one part of the country has no bearing on the pricing and competition in another part of the country. But even in parts of the country that are dominated by one health insurance provider, the Affordable Care Act includes a provision to protect patients. The law requires a “medical loss ratio” of at least 80 percent. That means that an insurer must spend at least 80 percent of its money that it draws from health care premiums on actual health care. In large group plans, that figure reaches 85 percent. That requirement effectively puts a limit on the rates insurers can charge.

How will this change affect your sleep medicine? 

Are you concerned about how the Cigna-Anthem merger will change health care pricing for your sleep diagnostics or sleep services? We at Advanced Sleep Medicine Services, Inc. can help you determine how your insurance applies to a sleep study or sleep apnea treatment. Read our list of Insurance FAQs, or Contact Us directly.

Are you concerned about how this merger will affect the health care industry? Share your viewpoint in the comments. 

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