California DMHC Approves CVS-Aetna Merger with Conditions but Health Advocates Still Concerned about Impacts

Today, California's Department of Managed Health Care (DMHC) approved the merger of CVS Health and Aetna, the final step needed for the merger to continue in California following the approval by the U.S. Department of Justice last month.
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For immediate release: Thursday, November 15, 2018

For more information, contact:
Anthony Wright, executive director, Health Access California, 916-870-4782 (cell)
Rachel Linn Gish, director of communications, Health Access California, 916-532-2128 (cell)

MERGER WATCH: 

CALIFORNIA DMHC APPROVES CVS-AETNA MERGER WITH CONDITIONS, BUT HEALTH ADVOCATES STILL CONCERNED ABOUT IMPACTS

CONSUMER GROUPS CALL ON NEW GOVERNOR TO USE STRONGER OVERSIGHT OVER HEALTH INDUSTRY THAT GOES INTO EFFECT IN 2018

  • California’s Department of Managed Care approves the $69 billion merger between CVS Health and Aetna with conditions.
  • Last month, the U.S. Department of Justice also approved the merger, making it the largest health insurance deal in history.
  • Health & consumer advocates raised concerns about the proposed merger at state agencies in hearings earlier this year, arguing that it reduces competition, potentially driving up costs for consumers. 
  • Legislation passed this year, going into effect on January 1, will create additional oversight for pending and future mergers
    • AB 595 (Wood) gives Department of Managed Health Care (DMHC) increased authority over health plan mergers like this, and
    • AB 315 (Wood) requires more transparency on pharmacy benefit managers.

SACRAMENTO, CA—Today, California’s Department of Managed Health Care (DMHC) approved the merger of CVS Health and Aetna, the final step needed for the merger to continue in California following the approval by the U.S. Department of Justice last month. Continuing the trend of “diagonal mergers,” the merger of CVS, a major pharmacy chain and one of the nations largest independent pharmacy benefit managers (PBM), and Aetna, one of the nations largest insurers, is the largest health insurance deal in history. This approval comes just weeks before new laws take effect in California that would strengthen the state’s role in ensuring these large health care corporations are acting in the best interest of patients and the public.

“These deals have major impacts on the health care system we all rely on and effect what choices we have and what we pay. While the conditions placed on this merger are laudable, we continue to be concerned about the impact this deal will have on our health system, and about the broader trend towards greater consolidation and higher health costs,” said Anthony Wright, executive director of Health Access California, the statewide health care consumer advocacy coalition. “Aetna had significant issues abiding by existing consumer protections, and a history of charging premiums deemed unreasonable by regulators. We will be watching to see if Aetna’s deficiencies persist, and that the commitments made, like the one to improve its quality ratings, are achieved. Many of the investments announced are important, but we note they are a relatively small fraction of the billions of dollars in the newly-merged corporation’s profit. We need to watch closely to see how the increased market power of Aetna and CVS impacts the health care system for all Californians.”

“We look forward to the implementation of new laws next year in California that will bring a stronger voice for patients and the public interest in these mega-mergers. New leadership in California, including a new governor, can and should exercise new authority to put tougher oversight over such transactions in the future. California policymakers need to watch closely to ensure that these companies fulfill the promises they made under the conditions of the merger,” said Wright.

Earlier this year, consumer advocates expressed concern over the continuing consolidation of the health industry. These acquisitions often lead to reduced competition, and can drive up costs for consumers without a corresponding increase in quality of care for the 14 million Californians in private coverage. The conditions imposed on the merger, including the divestment of Aetna’s Medicare Part D business required by the U.S. DOJ and investments in California’s health care delivery system required by the DMHC, are appreciated but not as strong as consumer and health groups were hoping for. Aetna has repeatedly pursued unreasonable rate increases and have failed to abide by basic consumer protections. CVS has offered no information on how it would correct any of their problematic practices by Aetna after they merge. Advocates are concerned that this deal gives more power to bad actors without all the necessary conditions to protect consumers.

California’s DMHC regulates coverage for 96% of covered lives in California. Nationally, there are only five competing major insurers, and health insurance markets are already highly consolidated. Although California has a relatively more competitive insurance market, three companies control nearly 80% of the market and our top five insurers control over 90% of the market. Therefore, any mergers involving major insurers are likely to result in fewer choices and higher prices. Private insurance premiums and out-of-pocket spending are high and projected to grow. Health insurance premiums for family coverage have seen a cumulative 216% increase since 2002, compared to a 37% increase in overall prices.

The California Legislature and Governor Brown passed AB 595 by Assemblymember Wood this year which would institute stronger state oversight over health plan mergers and protects Californians from changes to the health plan market that may lead to higher health costs. Also enacted was AB 315 by Assemblymember Wood which adds oversight to pharmacy benefit managers like CVS Caremark. By regulating PBMs and requiring disclosure of information on rebates and discounts, this new law will help ensure that consumers and purchasers actually benefit from savings that are reaped by PBMs. Both of these laws will take effect on January 1, 2019 and will affect any pending and future health plan mergers.

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