What’s Really Behind The CVS-Aetna Merger? (It’s Not Amazon)
Health Reform: The CVS Health bid to buy Aetna will “reshape” health care, or so headlines would have us believe. Actually, it’s a sign that the health care landscape is already being reshaped — by consumers, instead of central planners.
Every merger comes with promises that the merger will produce “synergies” and that consumers will ultimately benefit, and CVS Health (CVS) and Aetna (AET) are no exception.
“We know we can make health care more affordable and less expensive,” is the way CVS Health CEO Larry Merlo put it.
Whether the merger lives up to those promises is something the market should determine. But, unfortunately, there’s one thing standing in the way: a handful of antitrust regulators who can block the merger if they think it will prove anti-consumer.
Despite its pro-business, deregulatory inclinations, the Trump administration has been far from hands off when it comes to antitrust enforcement. The Justice Department is suing to block AT&Ts acquisition of Time Warner, despite the fact that this is a vertical merger that normally gets blessed by antitrust enforcers.
Unlike the previous horizontal merger attempts between Aetna and Humana and Anthem and Cigna — which were largely a response to ObamaCare and which would have consolidated the insurance industry — the CVS and Aetna deal would be vertical in nature.
The combined company would have a stronger hand when negotiating discounts with drugmakers, and against the threat of new competitors like Amazon (AMZN), which clearly has an interest in getting into the health care delivery business.
What’s most interesting about this merger, however, is that it’s a sign of the increasing clout of consumers in the health care marketplace.
This consumer empowerment has been the untold story of a successful health reform, most likely because it was based on free market principles and pushed by Republicans against fierce Democratic opposition.
The GOP’s Health Savings Account reform let people set up tax-exempt accounts that are tied to high-deductible health plans.
The HSA reform was meant to accomplish two things: reduce the imbalance in the tax code that favored employer-provided health benefits over out-of-pocket spending, and reduce health costs by giving consumers more skin in the game.
It’s worked better than even advocates could have hoped. Just 12 years after HSAs were introduced, these plans now command almost 30% of the employer market. Overall, more than 20 million people are enrolled — twice as many as were enrolled in 2010, according to the insurance industry trade group American Health Insurance Plans.
These accounts now have some $37 billion in assets, according to HSA investment advisor and consultant, Devenir, which expects assets to top $50 billion by the end of next year.
Unleashing an army of cost-conscious consumers is what’s been driving the industry to offer more low-cost alternatives. One study found that employer costs are 7% to 22% lower with HSAs than they would have been with traditional insurance.
This is how health care should work, and would work more effectively if the government would get out of the way. Consumers would be free to shop around for the best deals in health care, and keep any savings they realize. Doctors, hospitals, insurance companies, pharmacies would compete to provide the best quality at the lowest cost. Innovators like Amazon would find ways to disrupt the market…
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