Cigna – Humana merger raised potential impact on out-of-control health care costs. That worried experts.

Health insurer Cigna has abandoned plans to merge with rival Humana, but the potential for such a blockbuster merger heaped fresh worries on concerns that have been steadily growing for years that industry consolidation is systematically whittling away at health care options and making them more expensive.

The Wall Street Journal reported that Cigna is dropping a takeover bid for Humana, headquartered in Louisville. But the potential for such a combination raised concerns about the impact on health care options for consumers.

“What worries me is there actually will be less choices for consumers in choosing their insurance provider,” said Mohammad N. Elahee, professor of international business at Quinnipiac University in Hamden. “Usually, when there is competition, firms are under pressure. They try to be more innovative. They try to be more customer friendly. But when there are fewer competitors, they are not under that pressure.”

Instead, the focus more likely than not shifts from the consumer to cost-cutting and achieving higher profits, Elahee said, with consumers left with fewer choices and higher, out-of-pocket costs on top of premiums.

“When the focus is on the bottom line, on cost cutting, that is when the consumer really suffers,” Elahee said. “That is the part that really worries me.”

Some say Cigna and Humana may have been feeling the pressure to merge to keep up with larger rivals such as CVS Health Corp and UnitedHealth Group to a secure a position among the biggest health care companies. Indeed, experts say, there are compelling business reasons for such a tie-up: Cigna’s dominant pharmacy benefit and commercial insurance businesses would fit well with Humana’s rapidly expanding Medicare Advantage unit.

Medicare Advantage plans are sold by private companies who contract with the federal government to provide Medicare benefits and typically, extra coverage for vision, hearing, dental and preventative wellness programs.

In Connecticut, Cigna has the second largest market share, at 19%, behind the Anthem’s 37%, according to a nationwide study in 2022 by the American Medical Association. That same study found in the Hartford metro area, Cigna had a larger market share, at 26%, closer to Anthem’s 37%.

Humana does not have a significant market presence in Connecticut.

In the midst of consolidations, the escalating cost of health care is very much on the minds of Connecticut residents. A 2022 survey of more than 1,300 residents by by Altarum Healthcare Value Hub found that 4 out 5, or 78%, worry about affording health care in the future.

The Journal reported that Cigna still sees merit in acquiring Humana, citing sources familiar with Cigna’s thinking.

‘Ask that question’

The health care industry has been consolidating since the 1990s, but mergers — ever bigger ones — have marked the landscape in the last decade.

Health insurers paired up with non-traditional businesses such as pharmacy benefit managers, which manage drug plans and influence medication prices and distribution. CVS Health did that in 2018 when it acquired Hartford-based health insurer Aetna.

At the time, CVS executives promised to integrate the roles of doctors, pharmacists, other health care professionals and health benefit companies so they are easier and less expensive for consumers to use.

Pharmacy benefit managers, or PBMs, manage private insurance clients and Medicaid and Medicare prescription plans and own retail and mail order pharmacies. PBMs exert control over which drugs are prescribed, which pharmacies patients may use and how much patients pay.

As of last year, the three largest — Cigna’s Express Scripts, CVS’ Caremark and UnitedHealth’s Optum — controlled 80% of the market, according to Drug Channels, which tracks prescription drug distribution in the United States. All three are owned by a major health insurer.

Humana’s PBM is smaller than Cigna’s but combined they would account for one-third of the market, rivaling the size of CVS’ Caremark, data from Drug Channels shows.

Sean T. King, Connecticut’s acting healthcare advocate, said the possible merger of Cigna and Humana would continue — and strengthen — the close alignment of health insurers and PBMs.

King said that “is not encouraging for the idea that insurers and PBMs are going to be able to drive down drug prices, which is one of the biggest needs in the health care industry and also one of the biggest cost drivers.”

“Regulators and attorneys general and everybody whose going to be taking a look at this merger should ask that question,” King said, before the merger talks were called off.

‘Sky-high prescription drug costs’

Health insurer ownership of PBMs recently came under scrutiny in the U.S. Congress.

U.S. Sens. Elizabeth Warren, D-MA, and Mike Braun, R-IN, have called for an investigation into whether big insurers with PBMs evading federal requirements that limit the percentage of premium dollars spent on administration and reaped in profits — resulting in “sky-high prescription drug costs and excessive corporate profits.”

Warren and Braun sought the investigation after the Wall Street Journal reported on significant mark-ups on certain generic drugs by Cigna, CVS and UnitedHealth.

One key factor driving these high prices appears to be the fact that the insurers featured in the Journal’s story – Cigna, UnitedHealth, and CVS Health – also own or are affiliated with other key links in the drug supply chain: PBMs and pharmacies, Warren and Braun wrote in a letter calling for an investigation.

“By owning every link in the chain, a conglomerate like UnitedHealth Group – which includes an insurer, a PBM, a pharmacy, and physician practices – can send inflated medical payments to its pharmacy,” Warren and Braun wrote. “Then, by realizing those payments on the pharmacy side – the side that charges for care – rather than the insurance side, the insurance line of business appears to be in compliance with (federal) requirements, while keeping more money for itself.”

Analysts say a combination of the PBM businesses owned by Humana and Cigna could draw the attention of federal anti-trust regulators.

“Based on substance, the major overlap will be the PBM,” Lance Wilkes, an analyst at the research arm of AllianceBernstein in New York said, in a recent note to investors. “The issue will be market concentration and impacts on other pharmacies and other suppliers, as opposed to limiting chose to employers who wouldn’t typically use Humana for PBM services.”

Even if a Cigna-Humana deal was reached, there was no guarantee it would have passed muster with regulators or the courts. In 2017, Humana agreed to be acquired by Aetna but the deal was ultimately blocked in U.S. District court for anti-trust reasons.

Richard Frank, director of the Schaeffer Initiative on Health Policy at the Brookings Institute, a Washington, D.C,-based think tank, said massive health care mergers naturally constrict competition, particularly in markets where a few companies dominate.

“And that is a threat to the basic model of U.S. health care, which is competition,” Frank said.

Kenneth R. Gosselin can be reached at kgosselin@courant.com.