Obamacare’s Monopoly Pricing Explains Health Care Merger Mania

Anthem Inc. has just announced a $54 billion acquisition of Cigna that will allow the Blue Cross operator to pass Kaiser Permanente as the largest health insurer in the State of California.

Sold to the public as a way to increase competition and save the average American family $2,500 a year, Obamacare actually created monopoly pricing for the insurance industry that allowed premiums to rise by $2,500 and tripled the value of their stocks.

The Affordable Care Act (ACA), referred to as Obamacare, has spurred monopolistic concentration in the American health care industry. The five major insurers will soon be down to three, and doctors and hospital providers are also merging into large regional health systems directly associated with hospitals that now dominate local markets.

The driving force behind this concentration is Obamacare’s regulatory structure, which provides lucrative subsidies from other insured patients to pay for the Medicaid expansion. This system gives incumbent general hospitals with high Medicaid patient flow revenue advantages over less expensive specialty facilities. Any business sheltered from competition tends to accumulate higher profits and overhead costs.

Kaiser Permanente is currently the largest health care insurer in California with 7.8 million members, or 35 percent of the market. Its health maintenance organization (HMO) design has been a popular option for many large employers and effective signing up new members from California’s Obamacare exchange.

Anthem is second-largest in the state, with about 6.1 million members, and Cigna is the seventh-largest health care insurer, with about 2.1 million California customers. Both focus on administering employer self-insured plans that the company runs. After the merger, Anthem will control about 40 percent of the California market.

Although the inflation rate was only 0.8 percent last year, national health spending grew by 5.0 percent. The 2014 health spending share of national GDP came in at 17.8 percent, up from 16.0 percent when President Obama took office. Prescription drugs were the fastest growing healthcare expenditure last year, rising 13.0 percent.

That explains why S&P 500 Health Care Index that comprises all companies in the health care sector are up 305 percent since President Obama took office. The last 6.5-year run in healthcare stocks has been the fastest price growth in the history of the industry.

Covered California, the state’s Obamacare Exchange, has not released health insurance premium requests for 2016 yet, but those costs will be incredibly painful if they are anywhere close to the up-to-51 percent hikes in other states.

According to states that have released rate insurance company requests: New Mexico’s market leader Health Care Service Corp. is asking for a premium spike of 51.6 percent; Tennessee’s top insurer, BlueCross BlueShield of Tennessee, wants a spike of 36.3 percent; Maryland’s market leader, CareFirst BlueCross BlueShield, is requesting a spike of 30.4%; and Oregon’s top insurer, Moda Health, wants a 25 percent spike.

The association of ‘American Health Insurance Plans’–the health insurance industry super-lobby–spent $102.4 million to lobby Congress to tweak the 2010 Obamacare legislation to allow greater industry concentration and be more profitable than the current regulatory structure, according to the National Journal’s “Influence Alley”.

President Obama claims that he compromised the design of Obamacare in 2010 to achieve fiscal neutrality over a 10-year projection to avoid increasing deficit spending. But to achieve that mirage, the implementation was delayed for three years and the premium cost increases are about to be ramped up over the next two years.

The real reason for tweaking Obamacare’s design was to cut an inside deal with insurance companies and hospital groups that have allowed the businesses to gain wildly profitable monopolistic pricing in exchange for supporting the legislation. With premium prices about to spike much higher over the next two years, spending $54 to buy Cigna and be number one in California must seem like a bargain to Anthem.