Will mergers of health insurers help consumers?

The planned mergers of several of America's largest health insurers - Aetna combining with Humana, and Anthem with Cigna - is almost certain to be good for the insurers, reducing overhead and improving their bargaining position as they attempt to negotiate better rates with providers.

But what's in it for you and me? The answer may surprise you: In all likelihood, the mergers will lead to better medical care at lower costs.

There is little doubt that consolidation will reduce the insurers' administrative overhead. Aetna estimates, for example, that its merger with Humana could produce approximately $1.25 billion in annual cost savings by 2018.

To reduce costs further, however, the insurers will have to look elsewhere. The best possible approach they could take is aiming to improve patient health. This has not always been the focus of health insurers, but it is likely to be the big story that comes out of consolidation.

Most Americans get medical care today from an often-disorganized assortment of primary care doctors, medical specialists, therapists, diagnostic facilities, hospitals, pharmacies and so on. Costs and outcomes vary widely among providers in the same general locality and are usually unknown until after the fact. The right hand often doesn't know what the left hand is doing, and incentives - payments to providers based on quantity rather than quality, for example - are out of whack. The system is less than ideal.

Insurers - since they are the primary bill payers, along with government - have been looking for a better way. The model that's emerging as the most effective mirrors the Medicare Advantage program, which is an alternative to traditional Medicare sponsored by the U.S. government. It is offered by private insurers and accountable care organizations, or ACOs, and is chosen completely and independently by the senior citizen.

Currently, some 16.8 million Americans are enrolled in Medicare Advantage plans, mostly (about 64 percent) in health maintenance organizations, or HMOs, according to the Henry J. Kaiser Family Foundation, a nonprofit that focuses on health care issues.

What makes these plans different and effective is their organization and focus: networks of "preferred providers" with a strong emphasis on primary care, financial incentives aligned with clinical best practices, and active "care management" programs focused on keeping patients healthy, which reduces the need for hospital admissions. Research shows that this type of active care management is not only less costly than traditional fee-for-service medicine, but it also improves patient health.

The Boston Consulting Group confirmed this in 2013 when my colleague Daniel Gorlin and I did a detailed comparison of claims data for some 3 million Medicare patients.

What we found was that patients in the more managed programs, such as Medicare Advantage HMOs, had lower mortality rates and enjoyed better health and fewer complications than traditional fee- for-service patients.

Single-year mortality rates, for example, fell from 6.8 percent in the fee-for-service sample to 1.8 percent in the managed care models. These death rates declined quickly, within the first year of enrollment. The lowest mortality rates and the best performance overall were seen in "capitated" HMO plans, where the HMO receives a flat fee for each patient and is then responsible for all of the patient's medical needs.

Our research also showed that the Medicare Advantage patients averaged shorter hospital stays and fewer readmissions. Compared to the fee-for-service sample, the capitated HMO sample had hospital stays that were on average 19 percent shorter.

In recent years the large health insurers have learned a lot about patient health, managing care and the role incentives play. The mergers should enhance their capabilities, leading to additional reforms and better health care for all of us.

Jon Kaplan is a Chicago-based senior partner at the Boston Consulting Group and leader of its health care payers and services team in the Americas.

By Scott Gottlieb

Tribune News Service

Mergers are sweeping health care, as insurers, hospitals and doctors seek economic shelter from Washington by linking up and getting big.

These merger trends were underway prior to Obamacare. But there's little question that the law purposely hastened these developments.

The law's architects saw big insurers, big health systems and big hospitals as the best platforms for delivering medical care. Size, it was wrongly believed, would lead to more efficiency. It would also make medical care easier to regulate from Washington. While we've seen other waves of consolidation sweep the health care sector, most recently in the late 1990s, the current series of mergers and acquisitions is different.

The hookups are bigger and more pervasive. They're also unfolding in an industry that was already heavily consolidated. As a result, the impact on your medical care will be profound.

When it comes to the mergers in among health plans, the bigger issue isn't the consolidation of the nation's five largest insurers into three. It's the fact that far fewer new health plans are forming to replace the plans that have been acquired. New regulations, many of which were ushered in along with Obamacare, have made it too hard and too costly to start a new plan.

As a consequence, the number of distinct health plan choices people have at work or even on the Obamacare exchanges has shrunk under the Obama presidency.

Only about 50 new health carriers have entered the commercial market since 2008, according to a November analysis from the investment firm Goldman Sachs.

Of that number, at least half of these new plans are the struggling "co-ops" that Obamacare heavily subsidized, on an egalitarian premise that these not-for-profit health plans would be able to channel more of their revenue into medical care, since they didn't aim to turn a profit.

But today, all of these "co-op" plans are struggling financially. One has already filed for bankruptcy. The concept is widely perceived as a bust. At the same time, around 40 health plans also left the market over this same stretch of about seven years. Some merged with competitors, but at least 13 were shut down or liquidated. Working with research staff at the American Enterprise Institute, I developed similar data that shows even fewer new health plans entering the market since 2008.

We defined new entrants as health carriers or provider organizations that sold health insurance plans sometime between 2008 and 2015 and had never before offered coverage in the market. We found only 38 new entrants. Of these plans, 23 were co-ops, six were provider-sponsored plans being offered by hospital systems, and only seven were new commercial carriers.

The problems aren't the mergers but government policies that make it hard for new health plans to enter the market and replace those that are eliminated through the deal making.

For example, startup health plans often must channel more of their revenue into their initial operating expenses to help pay for the high costs associated with launching a new health plan.

But Obamacare has put tight limits on how much of their revenue a health plan can spend on operating costs - and keep for profits. These government rules make it very hard for new plans to get started. The limits on how much money a health plan can keep for profits also deter investors from putting up the capital to start new health insurance carriers.

Obamacare's planners weren't blindsided by these outcomes. They readily embraced them. The president's team saw insurers as costly middlemen. They figured that government subsidized "co-ops," as well as health plans that would be started by large hospital systems, could easily displace the for-profit insurance carriers. That view is proving naive.

Obamacare tried to re-engineer the rules of medical care and health insurance. Instead, the legislation only served to raise costs, and shrink the choices people have.

Scott Gottlieb is a practicing physician and a resident fellow at the American Enterprise Institute, a think-tank in the nation's capital. A frequent contributor to The Wall Street Journal, he has served in various capacities at the U.S. Food and Drug Administration including deputy commissioner and senior adviser for medical technology.