To merge or not to merge? 5 things to know.

The Justice Department filed lawsuits blocking two mergers of health insurance companies that would whittle the nation’s five largest health insurers down to three gigantic entities.

Why are the proposed mergers, totaling $85 billion, making Uncle Sam so nervous? And why are insurers pushing back? For example, this week Aetna announced plans to withdraw from health care exchanges in more than two-thirds of the counties where it participates.

Here’s a look at the key issues involved:

  1. Lack of competition could create a crisis.
    American companies and individuals benefit from competition in the marketplace, according to William Baer, the Justice Department’s antitrust chief, who filed the lawsuit blocking the mergers in July.

    During a CNBC video interview, Baer said the proposed mergers could reduce competition, drive up premiums, decrease quality and discourage innovation.

    He could be right: The LA Times reported that hospital and insurance mergers that took place in the 1990s and early 2000s were disastrous for consumers, with price increases of up to 40% in communities that lost competition.

  1. The big five could become the mammoth three.
    Currently the five largest health insurers are UnitedHealth Group, Anthem, Aetna, Cigna and Humana. The proposed agreements would create an Aetna-Humana merge and an Anthem–Cigna merge.

    The agreement between Aetna and Humana raises competitiveness concerns primarily in the Medicare market, limiting options for seniors. Anthem and Cigna’s deal is a concern due to its large size and the companies’ geographic overlap, which would limit choices for major employers with a workforce in multiple states.

  1. The Affordable Care Act (Obamacare) is a two-edged sword.
    Health reform legislation outlined opposing goals:

 

More choice. One major provision of the Affordable Care Act is to provide people with more health care choices and affordable policies. In an ideal world, competition would spur innovation and drive costs down. But in reality, major insurers are withdrawing from exchanges created by the Affordable Care Act because they’re losing money in those markets.

Better collaboration. Health reform’s success depends on decreased duplication, evidence-based treatment protocol and better utilization. This reshaping of the practice of medicine includes incentives for removing barriers and capturing value.

Mergers have the potential to improve this collaboration and generate economies of scale. As Aetna claimed with its merger announcement, “The combined entity would drive consumer-focused, high-value health care.”

  1. The government has an anti-trust mindset.
    This isn’t the first merger roadblock in health care, and it won’t be the last. The New York Times reports that the current administration “has not been shy about quashing deals – especially in health care.”

    Not only have mergers among large hospital systems been blocked, but the government contributed to the failed merger between Pfizer and Allergan by announcing new tax rules that made the deal less attractive.

  2. Merger mania continues.
    Although these mega mergers are under scrutiny, smaller mergers continue across the U.S. among insurers, hospital systems, pharmaceutical companies and others.

    As a case in point, independent hospitals are being gobbled up by larger health care systems, with 112 hospital acquisitions announced in 2015, according to management consulting firm Kaufmann Hall.

    In addition, doctors are giving up independent practices in favor of employment by hospitals or large health systems, and insurance companies are joining forces to increase their negotiating clout. The CIT Healthcare Industry Outlook expects this consolidation to continue as a strategy to improve efficiencies, lower costs and increase revenues.

This is an ongoing saga that won’t come to a quick conclusion. The merger announcements came during a three-week span in summer of 2015, lawsuits challenging the mergers were filed this summer, and rulings aren’t expected until early next year.

Information security officers and risk managers can work together to select and customize cyber insurance policies.

Cybersecurity insurance, once under the exclusive jurisdiction of risk managers, is becoming an increasingly collaborative experience for both risk and information security officers.

According to a recent report, the purchase of cybersecurity insurance is not only increasing – up 27 percent in the U.S. in 2015 – but the economic damage of a successful cyberbreach is also going up. Previously, traditional insurance policies may have included some coverage of cyber incidences, but now most insurers will require specific cyber insurance policies to cover these vulnerabilities, TechTarget reported.

Industry experts speaking with TechTarget noted that early cyber insurance policies were often very broad. Today, though, cyber insurance offers a range of nuanced coverage, which may include financial protections for data breaches, ransomware attack, forensic teams, notification expenses and other liability costs. Companies with specific risks, such as loss of valuable intellectual property, may also wish to customize their policies further. This is why information technology officers are becoming increasingly involved in selecting an organization's cyber insurance coverage.

Customizing a cyber insurance policy
As Security InfoWatch reported, the involvement of security officers is especially important as businesses navigate the many different policies and price points that are available to them. The number of companies purchasing cyber insurance increased approximately 250 percent between 2013 and 2015, the news website noted, but collaboration with cybersecurity professionals isn't increasing at the same rate.

Working with a security officer affords another advantage as well: It can help to lower the cost of the insurance the organization selects. Security InfoWatch found that many insurers offer lower rates to organizations that take active steps to reduce their risks. One way to do this is to have a cybersecurity program in place before purchasing insurance. This may include employee training on best practices, a breach response plan and internal and third-party audits of corporate networks, cloud providers or other services that access sensitive information. Organizations should also ensure all third-party vendors are complying with internal cybersecurity procedures during their interactions with networks or networked devices.

"Working with a security officer can ensure compliance with the insurer's cyberrisk mitigation requirements."

Reviews by security professionals may be especially important as the cyber risks covered by insurers evolve. According to New York Law Journal, some insurers may offer "stand-alone" policies adapted for the organization's specific needs, while others offer cyber-related provisions attached to other more general policies. Therefore, it is very important for an organization to understand the coverage provided by the specific policy it is purchasing, as well as the liabilities it must assume. 

For example, if companies fail to follow the requirements laid out in their policy – such as not properly securing their servers or training employees on mitigating cyber risks – they may nullify their insurance coverage. Information security officers should be able to review the insurance policy and ensure all required actions are completed.

Additionally, organizations need to ensure they have purchased adequate coverage for their risks. As the Journal noted, following the notable breach of Anthem in 2014, the company exhausted its cyber insurance coverage through credit reports and notifications for affected customers alone. An information security officer will be able to help risk managers access the appropriate level of coverage for the organization.

Many policy holders are already seeing higher deductibles on their company-sponsored health plans.

As part of its recently improved budget deal, Congress passed legislation that delays implementation of the Affordable Care Act's Cadillac Tax for two years.

The spending bill, which passed the House in a 316-113 vote and the Senate with a 65-33 vote, would delay implementing the Cadillac Tax until 2020. Originally scheduled to go into effect in 2018, the Cadillac Tax was designed to restrict employers from offering high-cost employer-sponsored health plans by placing a 40 percent excise tax on plans exceeding $10,200 for individual coverage or $27,500 for family coverage annually.

"Opponents of the Cadillac Tax see its delayed implementation as a sign of its eventual repeal."

Some opponents of the Cadillac Tax see its delayed implementation as a sign of its eventual repeal. In a statement, James A. Klein, president of the American Benefits Council, said support for repealing the tax is diverse and includes patient advocates, unions and private and public sector employers.

"We applaud Congress for passing a two-year delay of the 'Cadillac Tax' and thank the Congressional champions who made this possible," Klein said. "The delay provides a much-needed down payment toward the ultimate goal of full repeal."

However, Forbes contributor Brian Blase argued the Cadillac Tax would actually remedy a major problem with the Affordable Care Act: the tax exclusion for employer-sponsored health insurance leads to employers offering overly expensive insurance. This leads to lower wages for workers who see more of their pre-tax income going to pay for their employer-sponsored insurance plans.

Controlling health care cost
According to a report from the Mercatus Center at George Mason University, this tax loophole also creates market distortions and leads to $300 billion in untaxed revenue each year.

"Many of the United States' current health-care-related problems – from lack of choice and competition to rising costs – stem in part from the tax exemption for employer-provided health insurance," the Mercatus report concluded.

"Proponents of the Cadillac Tax argued it would help to slow U.S. health care spending."

As reported by Business Insurance, group health care plan costs are increasing each year, and proponents of the Cadillac Tax argued it would help to slow U.S. health care spending. Even though the tax is delayed for now, many insurance providers had already begun restructuring their offerings in order to lower their rates and avoid the 40 percent levy. According to a report from the Kaiser Family Foundation, 53 percent of large employers with 200 employees or more have already analyzed their plans to see if they would be hit with a high-cost plan tax and many have made changes to lower plan expense. The Kaiser report also found 8 percent of large employers had already switched to lower-cost plans.

However, as CNN noted, many employer-sponsored plans have also begun passing on the cost of the Cadillac Tax to employees by increasing deductibles and other out-of-pocket expenses. Wellness programs, on-site clinics and other costly programs may also be eliminated as employers look for ways to control the health care costs they are absorbing.