June 20, 2015

TOO BIG TO FAIL, OBAMACARE EDITION: Obamacare’s Oligopoly Wave.

The five largest commercial health insurers in the U.S. have contracted merger fever, or maybe typhoid. UnitedHealth is chasing Cigna and even Aetna; Humana has put itself on the block; and Anthem is trying to pair off with Cigna, which is thinking about buying Humana. If the logic of ObamaCare prevails, this exercise will conclude with all five fusing into one monster conglomerate. . . .

[T]he economics of ObamaCare reward scale over competition. Benefits are standardized and premiums are de facto price-controlled. With margins compressed to commodity levels, buying more consumers via mergers is simpler than appealing to them with better products, to the extent the latter is still legal. Synergies across insurer combinations to reduce administrative overhead and other expenses also look better for shareholders.

The mergers reflect the reality that government—Medicaid managed care, Medicare Advantage and the ObamaCare exchanges—is now the artery of insurance profits, not the private economy. The feds “happen to be, for most of us now, our largest customer,” Aetna CEO Mark Bertolini said this month at a Goldman Sachs conference. . . .

A healthier market would have many new competitive entrants given the transformative pace of technological and biomedical discovery. Health-care finance and delivery ought to be evolving along with these innovations, but the only disruptive force under ObamaCare is government. So five years into the glories of “health-care reform,” the same antiquated incumbents dominate as they did before, only with less accountability to patients. Cartels don’t care about quality, safety or costs to consumers.

It’s not a flaw; it’s by design. Next stop: single-payer, unless Obamacare is repealed, and soon. 

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