senator lee: welcome to this hearing of the subcommittee on antitrust competition policy and consumer rights. before we start, i would like to amyk ranking member klobuchar, and her staff for preparing for this hearing today. i would also like to thank the chairman of the full committee, senator grassley, for his support of this hearing. a few housekeeping matters. after i and senator klobuchar give some remarks about this hearing, we were here from our panel of witnesses, who i will introduce in a few minutes. then, we will have five minutes of questions.

i should know that we an important role on the floor this morning, so i, and other members, will likely need to step out briefly to participate. we may briefly paused a hearing proceedings, although sometimes necessary,ot become dependent on the order in which people ask questions. we are here, to discuss the proposed mergers between four of the nation's five largest health insurance companies. in early july of this year, aetna announced it had reached a deal to purchase rival humana. if you years later, -- a few months later, at them i now sit sigma.l to purchase the department justice is currently reviewing these transactions. the industry's big five will

be reduced t the big three. united care, and send, and aetna hem, and aetna. these acquisitions raise the questions is the product offerings will impact the market. that antitrust inquiry is whether the combination will lead to a market concentration that make substantially lessen competition. , and thensactions concurrent review, also raised questions about the broader issue of consolidation and our nation's health and search -- health-insurance industry. it is my hope that our discussions say will help the public and lawmakers in understanding what is causing the trend towards consolidation, as well as how it may affect consumers. s we have seen since the passage of the patient

protection care act, southern changes can lead to financial increased rate on the consumers and their families. while private competition in every industry is important to our economy, consumers and policymakers pay a special attention to when health care is involved, as it is here during health care markets are others byhed from their complexity, financial incentives, and demand. health related goods and services reach consumers through ofyzantine labyrinth manufacturers, wholesalers, managers, insurance companies, and other third-party providers, state, federal industries, and sometimes, employers. and many instances, those receiving care, those pay for care areaying for

different entities. despite the high cost, everyone, at some point, will require it. onlth care also touches some of the life-changing decisions of consumers that have an impact on their personal and economic well-being. that brings us to the present transactions. the first to be announced with that between aetna and humana, the third and fifth largest providers, respectively. aetna offers a variety of health insurance products, including dental, vision, medicaid, medicare, supplemental, medicare advantage, and commercial policies. and this primary focus is -- inna's primary focus is large accounts and self-insured employers. on medicare, with at least one medicare product in at least every state in the

union. humana is the second-largest provider just behind united health care. betweennd transaction tohem and sigma proposes merge the second and fourth largest providers respectively. anthem has over 38 million health insurance customers. sigma has over 14 million lives and focuses on commercial health insurance offerings. is, in andse deals of itself, incredibly complex and raises its own unique .oncerns industry concerns has noted that the overlap between aetna and -- post concentrated

levels raises strong competitive concerns. others raised the accuracy of the data cited an interpretation of the data. while some are concerned that the deal will need to higher prices and fewer choices for consumers, the companies have identified millions of dollars a potential efficiencies. -sigma merger is claimed to result in concerning concentration levels for commercial health insurance 807ucts in up to metropolitan areas. the insurance companies dispute the numbers, arguing that if they failed to separate out different insurance products, that those conclusions felt to

separate out different insurance products in different product markets. anthem and sigma believe they are joining complementary businesses in a way that will allow them to lower costs and improve quality for consumers. sigma's acquisition of raises questions as to how sigma will be integrated into the blue system.lue shield sigma'sssible that ability to compete postacquisition maybes strained membership in the blue cross blue shield system. for its part, sigma believes it will not cause them to run into any limits to by the membership agreement. in addition, there is the question of how these mergers may affect nasa and forms of competition of the health scent forms- nas

of competition of the health insurance system. focus on patient outcomes and overall health, particularly to, provided of care, rather than just paying for services on a fee basis. as the marketplace of violence in response to consumer demand it willrnment policy, be important to ensure that consumers are benefiting from wideous competition and choice, rather than being brought into the offerings of just a few dominant companies within dentistry -- the industry. finally, we cannot ignore the far-reaching affect every the affordable care act and the effect it has had on the market place in america. now i would like to emphasize that this is not a hearing on obamacare, and discussion of its role and current industry is

unavoidable. it is important for us to ask how it may be affecting the competition of these markets. as we can see these issues that are raised by these proposed transactions and the complexities of the health care space provide the topic for our discussion today, the final determination of the impact of the dearborn be made by the arm of justice, i believe we can make valuable concert since -- by closelyns examining the questions they raise and by looking at what other forces or market realities may be driving consolidation. particularly at a time when the debate over national health care continues with great fervor, and the health care marketplace is rapidly evolving to meet the demands of the tory first century, it is essential that -- , it is21st century

essential that lawmakers paid close attention to competition and the free market. i hope we can make strides to that end today, and i look forward to hearing and engaging in the testimony of eyewitnesses. senator klobuchar. senator klobuchar: thank you very much. thank you to our witnesses. this is an important hearing to consolidation an health insurance industry. i want to welcome all of our witnesses. i think we all know that the cost and quality of health insurance affects all of us. as a nation, we value competition. the supreme court has called the sherman act the magna carta of free enterprise. as a nation, we have developed a broad consensus that competition beats to lower prices and by protecting competition, the antitrust law provides those benefits to consumers.

for a longtime time, however, people found the health-care industry differently. in the 1970's, some worried of a competition that would be to a medical arms race where providers would unnecessarily duplicate services and increase costs. more recently, we've come to understand the competition at all level of health care benefits consumers. consequently, the proposed merger of four of the five largest health insurance companies could change the industry. its impact on consumers must be carefully scrutinized. coverer, these insurers over 90 million people, almost three out of 10 americans. we spend over $960 million on , andh insurance cost-effective health insurance, we know, is critical. there are some that are convinced that if this merger is haveved, consumers will

less benefits and less time with her their doctors. others believe that competition will remain vigorous. for me, i think we need to explore to two questions. first, the effect of these measures on consumers, and second, the advise on the integrity of our health care system. i want to make sure these deals do not harm consumers by increasing premiums or reducing an. also, we need to determine if providers gain an unfair advantage. equally important, we need to consider whether these transactions could enhance competition. the health-care industry is going under a significant transition as we move towards more automated care -- coordinated care. will the merger support or

cubicle of coordinated care? the trust division of the department of justice has significant experience reviewing health insurance renters. -- mergers. they typically analyze the deal looking at how it will affect the individual, small employers, large employers, and the health insurance plans. access tor must offer providers close to where the consumer works are lives to be viable. , the berriesntry it would take, and the products it provides. at the same time, significant changes are occurring. we now have public insurance exchanges that empower individuals. some companies have adopted the idea and provided private

exchanges for the retirees or employees where they provide from a number of different plans. harmally, we measured the against possible benefits. in other words, will it lower-cost or improve quality in a way that it would not occur without the merger? equally important, with the benefits flow to consumers? mr. chairman, i would be hearing from the panel on these issues. i personally very interested in prescription drug prices, and hope it is something we will look at in the future. senator bobby and i just on genericour bill and pharmaceutical deals that we think harm consumers. secondly, i have a bill with senator mccain allowing the

rotation of drugs from canada, and a bill that allows for negotiation under medicare part d. while we are focusing on the health insurance issues, i think we all know that there are other issues related to cost as well in this industry that must be examined, as we are seeing some in the escalating costs pharmaceutical market, especially. thank you, mr. chairman. senator lee: i will now introduce our of our witnesses, before we swear them in and hear from each of them. mark bertolini is chairman and ceo of at not. -- aetna. andecame ceo in 2010 present in 2011. he holds a degree in finance from wayne state university and an mba from cornell. joseph swedish is the president and ceo of anthem. he joined anthem into the supporting and has over 40 years

health care. in he received his bachelor's degree from the rest of north carolina at charlotte and his masters degree in health and administration from duke university. dr. paul ginsburg is the norman topping chair and medicine and public policy at the overseer -- then california wher university of southern california. continuing to be based in washington, d.c., he instructs graduate courses and conducts health research. urg served as director of the payment review commission, not the medicare provider commission and

is deputy director at th budget office. he earned his doctorate of economics at harvard university. dafny is professor at the kellogg school of management. herb research examines competitive interactions between payers and providers of health care services, and the intersection of industry and public policy. dr. dafny is a graduate of he harvard college and ha a degree in economics from m.i.t. she is a board member of the american economists institute. she served as deputy director for health care and antitrust in the bureau of economics at the federal trade commission in washington.

she is a current member of the panel of advisors for the congressional budget office. became president and ceo of the american hospital association in 2015, after serving in various roles over the last 33 years. he holds a bachelor's degree in political science and communications from the state university in the arts college -- state university of new york college. slover's senior policy .ouncil at consumers union he previously worked at the justice department's antitrust division and at the house judiciary committee, where he was lead antitrust counsel, and later chief legislative council. he is on the advisory board of the american antitrust institute. he is an elected member of the

american law institute, and cochair oferves as the d.c. trust and bar association. jd from the rest of texas law school and a masters of public affairs from the lbj school. i will now ask you to our ask eachs to stand -- of our witnesses to stand. you can from the testimony you are about to give will be the truth, the whole truth, and nothing but the truth? remarksnow hear from each of our witnesses. we will now start with mark bertolini. ni: my name is mark bertolini. i am the 14 chairman and ceo of founded in 1853 in hartford, connecticut. i thank you for having me here today to discuss our accusation .- acquisition of humana

we are in a time of unprecedented change in our country when we look at health care. it is our view that it is time for change. payment reform is on the forefront. age -- on and covers -- every american should have health care coverage. what i would like to talk about today is my the humana is important to furthering our evolution as a health care company and as a health care system in the united states, focused on providing the highest quality available, the best, and most affordable coverage available for all americans. after the acquisition, aetna will have a product portfolio more balanced with other products such as medicare and medicaid. today, the market competes on price and choice. this will not change.

to win in the market, we believe consumers should be able to pick products focused on improving the health of the member. the cdc has a term called "healthy days," a simple survey that consumer takes to determine if they are having a healthy diet. both companies see this as an important metric. we're broke committee to provide products and services that will help improve the number of healthy days our members can have each year. i understand that the purview is about competition and consumer choice. let me address the competition and choice issues directly. important to point out that of the 54 million beneficiaries today, 37 million, or 16%, receive their care through medicare service, while the remaining 17 million, or one third did the current -- get the

care through medicare advantage. we believeition, that robust choice and competition will remain in the market. there are 143 health care pma plansoffering and with new plans each year. local.lth care is today, and over 3200 counties across the country, 3100 offer mma coverage. beneficiaries have an average of 18 private plans to choose from, and even in nonmetro or an average, there is of 10 plans to choose from. after the transaction, only 8% of beneficiaries will receive benefits from humana or

aetna, meaning they will receive it from medicare service or ma plans. on the commercial side of the market, humana represents less than 2% of the market has no national market presence. represents less than 12% of the market. nationally, there are over 400 companies operating with the blue cross blue shield plan being the largest insurer. after the transaction, other companies will have 87% of enrollment. on public exchanges, humana and aetna overlap and only eight states. in those days, there are damage of 10 other companies as competitors. we believe there will be no material change for the competitiveness of the market as a result of a transaction. concerning the price of our

products, premium prices are not the abstract. instead, they are determined by ,he underlying cost of care which make up nearly 85% of premium prices. given that this transaction is largely about ma and pricing, protection is more insured by the government establishing rates raised on the cost of health care in each county. mainsurance company offering plans must and are incentivized to be competitive. hence, many companies offer zero dollar premium plans to consumers. in fact, ma premiums have decreased by 6% since 2010. 95 percent satisfaction rating, making it one of the government's most

popular plans. mergers and acquisitions are not just about efficiencies and business goals. aetna, share ad common culture. strategy.umps both cultures are focused on improving health, not just selling products. some of you may be familiar with my own journey with the health-care system, and as difficult as that journey was for me and my son, it strengthened my resolve to make the health-care market more competitive and improving the basis of underlining health. we are focused on building a consumer centric health care system. ne can make a happe

across all health care segments. i don't acquisitions occur, there is concern for jobs. as a blue-collar worker, i understand the challenges of living paycheck to paycheck. it is why i have led an effort benefitse the of our employees. in april, but raise the minimum wage to $60 per hour -- we $16ed the minimum wage to per hour. the benefits will be expanded to 10,000 humana employees, $16ently earning less than per hour. there will be some this location of jobs initially, by expectation is to increase employment by providing high quality and affordable products to the market. abouting humana is positive change in the market, modernlding a health care system. it is about challenging the oldetition to compete on

dimensions and improving the number of healthy days that consumers can enjoy each year to live the most productive lives possible. we believe our acquisition will improve the marketplace by providing affordable and high-quality products. thank you for the opportunity to testify today. i look forward to your questions. senator lee: thank you. .r. swedish mr. swedish: thank you. i am joseph swedish, president and chief executive officer of anthem. it is my honor to appear before you today. the work of this committee, and the dialogue we engage in will help shape the future of health care in america. i appreciate the opportunity to contribute and them's -- anthem's experience. servicemembers

by anthem. served i would like to begin by thanking your dedication, leadership, and partnership, and by reinforcing anthem's commitment to continue our proud 75 year history of providing high quality affordable health care benefits to communities and the divers populations that we serve. my been testimony details the complement the nature of anthem 's businesses. i would like to focus my remarks today on the most important beneficiaries of this proposed transaction -- the consumers. undergoing an unprecedented transformation. while affordability, active, and quality articles unanimously shared by a health care system, they are not universally enjoyed

by consumers. them and sigma the opportunity to provide a broader portfolio to keep health benefits more affordable and promote higher quality affordable health care for consumers. simply put, the combination of ushem and sigma will allow to provide better health insurance to more people. we will keep health care affordable by more efficiently and effectively addressing the the cost health care -- of care in itself. our combined capabilities will and power better informed -- empower better informed decisions. our combined health and wellness gaps ine will help fill

recommended care and more proactively engage consumers in managing their own health conditions. we were expand access to a broader network of hospitals, physicians, and health care professionals so consumers receive the highest quality care available when and where they need it. and, improve quality by expanding our innovative models that today represent more than $50 billion in reimbursements tied to that of value, that of value, better quality, and outcomes for members. much of the attention about this acquisition focuses on competition, certainly an essential part of the dialogue. it is important to recognize that health care is fundamentally local -- locally based, delivered, and consumed. many localities and

business segments in which anthem and sigma operate, there is robust and growing competition. given the very limited, and in most areas, no market overlap and sigma,hem competition will no doubt continue to flourish. there are many calculations, analyses, and opinions being willssed about what this mean for competition. the true question to be asked is what will this mean for the consumer? the answer is simple. anthem and sigma together means better health insurance for more people. throughout my 40 year career, i have worked diligently to culture of innovation and collaboration across many organizations that i have led. the combined company will be no exception. and sigma, anthem have made meaningful

progress in improving access, quality, and affordability for consumers. together, we can and will do much more. we look forward to working with you and the entire health care system to expand access to affordable, high-quality health benefits. thank you for the opportunity to testify to you today. i look forward to your comments and questions. urg.tor lee: dr. ginsb : i'm grateful for this opportunity to testify on this issue. for the past 20 years, i have studied changes in the financing and delivery of health care and its impacts on people. my goal today is to point out how mergers of large national insurers fit into the changes of health care financing and delivery. mergers are inherently difficult

to analyze. most insurers operate in numerous market segments, most of them distinct by geographic area. as intermediaries between providers of care and those insured, they operate as buyers and sellers. we may believe that a merger will lower prices, but we need to analyze whether these will be passed on to those who purchase insurance. the department of justice will conduct a detailed analysis of the possible effect of these mergers, and if there is approval, there may be .equirements for the vestiges i do not have a position whether or not these mergers should be approved. market concentration is only one dimension that affects how competitive health-care markets are. federal policy and other factors behind market entry can have profound impacts on

competitiveness. for example, if congress created plan,ing process for a the market would be more competitive. via portable care act appears to have made the market for individual insurance far more competitive than it was before. numbers are entering the market with their own plans that favor their own providers. notwithstanding the focus on market consolidation, i see some important upsides that the mergers were discussing today. for one, wall street analysts leads tohis will substantial reductions and administrative costs. having more lives in a market a more attractive partner to providers to create these models. to investlow plans

more in data and analytics to support providers better in these models. it also addresses inaffordability that many providers feel about the transition to alternative models, which they often described as having one foot in the boat and one for on the dock . if there passed on to consumers, obtaining lower prices can be an upside to mergers. it has long been shown that higher prices account for a part of higher spending in the united states. staff asked me to comment on the world the affordable care act has played in these insurance mergers. i begin by saying that the most controversial part of the affordable care act, subsidies to private insurance, and medicaid expansion are likely. major factors. other parts are more important. many of these impacts should be

seen in a positive light. is expanded opportunity for private insurers providers asse well. the cadillac tax may also be pushing this forward. the medical loss ratio minimums are motivating reductions in administrative costs, which they were intended to do. finally, cuts are increasing the pressure to make these plants more efficient. i would be pleased to answer the subcommittees questions. thank you. senator lee: dr. dafnt. : thank you for the opportunity to testify today on consolidation in the health insurance industry. i am a professor of strategy at the kellogg school of management.

i study competition using analysis.n we are here today because americans are concerned about the steep price of buying health insurance. even as their premiums rise, they see increases in deductibles and copayments. more than a decade ago, i began studying whether a lack of competition in the health insurance industry contributes to higher premiums. and, it does. we are paying a premium on our premiums because of limited competition. my most conservative estimate would place that extra premium at over $200 per person per year. the question before us today is whether more consolidation is likely to benefit consumers in the future. to inform that discussion, i will describe what we know about consolidation in the past, why those conclusions remain relevant, and what might

increase the likelihood that any future consolidation benefits the public. first, what we know. we know less than we should. public data are limited and cover only subsets of the industry. we know that the market for a full medical insurance would be deemed highly concentrated and 38 states, according to the threshold defined by the federal trade commission and the department of justice. we know that 37% of medicare beneficiaries live in counties where the advantage market would also be deemed highly concentrated pure concentration of both of these industries has been rising in recent years. the best available evidence on -- impact of consolidation my colleagues studied in such event, the 1997 merger between aetna and credentials. be examined the impact on -- we examined the impact.

where they have the greatest overlap, we saw the greatest reductions and health care and wages. we would have expected the premiums to go down in these areas, but the opposite was true. the cost savings would not pass passed -- were not through. aetna and just a theirtial, it was competitors as well. there was a bright spot in texas . other researchers have also found payer mergers lead to higher premiums. there is no evidence that mergers have led to improved qualitythe department of justil

evaluate the mergers we just heard about and determine if the deals by late any trust deals and follow-through accordingly. whether they are violating antitrust law is a separate issue. to serve the public best, i advised that they not only as tough questions, but demand greater transparency and consider regulations to require. with copperheads of data in hand, policymakers will be able to monitor. mr. pollack: i think this is

a historic hearing. you have already answered it, about the middle east, but you asked, could we be successful tackle i ask you, -- successful? i ask you, if we go to iraq, will be receive a successful result? you said, yes. i said, if that were not the case, would you tell us? you said, yes. you succeeded in suggesting that we could succeed. i cannot tell you how much i value your opening statement. i think we should all appreciate the efforts of senator mccain at that time. he placed everything he believed about the forces and our men and above anyombat

personal or political goal. i think that is a good example for all of us. senator lee: i seem to recall him saying that he would rather lose an election than lose war. senator mccain: so, i did both. [laughter] senator lee: if i could make one , it is important to remember that the surge that matter the most was the change in strategy. big ideas are everything. getting out of the neighborhoods to recognize the only way to secure the people is by living numberem was big idea one. it was very difficult to execute, costly, but necessary, ringt actually help security and violence down, coupled with the other big idea that you cannot kill or capture

in your way out. you have to promote reconciliation. that is why i singled out building on that case of inonciliation, established -- by now 45% of americans who have health insurance. a's acquisition of sigma affect 45 million consumers. because the to companies generate revenue, only a slight

increase would cost consumers millions of dollars in health care costs. meanwhile, if aetna is required , advantagehumana plans and more than one million markets, would become even more concentrated. it would likely result in higher out-of-pocket costs and fewer benefits. the deal would not only eliminate the current competition between aetna and humana, it would also eliminate future competition between them. this is particularly concerning because even now there is almost no, titian in medicare advantage markets. almost 90% ofthat advantage markets in the united states are highly concentrated. conclusion, we are very concerned that both deals could

result in fewer choices for consumers, and narrower networks for providers, and higher premiums, and out-of-pocket costs. that is why both of these acquisitions merit the close scrutiny of the department justice and congress. the dealscompare to the telecommunications arena because of their size and potential to contort the market and harm consumers. the department of justice was ready to challenge the telecommunication deals, and it should be ready to challenge these and servants -- insurance deals if it finds the transactions that and the vitality of the system. we look forward to make sure that consumers continue to have access to high-quality affordable health care in the community. slover.lee: mr. you,lover: thank

subcommittee. consumers want and of competition to give them meaningful choice. .hoice gives us leverage from our founding in the years ago, consumers union has worked to make quality health care available and affordable for all. this marketplace is complex and how it operates and motivates. to ensure helps safety, control costs, and make better health care available. you cannot run the system on competition alone and let the free market go where it will appear pre-existing conditions is a prime example. -- etition at an incentive adds an incentive. some corroboration can be good for the overall system combo but too much concentration on hospitals, doctors, or insurers

can undermine the system and harm consumers. dominant players start dictating to others, closing off choices theumers want, increasing prices and impairing quality of what we receive. they gave us the disallowed amount. a dominant insurer could push doctors and hospitals to go beyond trimming cost and degrade care. we are concerned that these two produce too much competition into a markets with too much harm. there are several goods in each local area, different types of insurance, where competition will not cross over. seniors are not giving up the medicare advantage to switch over to the state exchange. we need to look at where competition could be.

before insurers -- these four insurers are active across the country. if these four giants have decided that expanding on their own is not worth the trouble, how can we count on expansion by other insurers. the same on relying on the divestitures. they do not always work. supposedly this other company is ready to jump in with the same capability and commitment to compete over the long-haul. that is always a vote of the dice. if this new company is so ready and committed, why was it not there already? it is risky to allow mergers of to the brink of harm. orre is no margin for error

change. the law cannot force the company to stay in business. some say giving the insurers more market power boat offset power.- will offset the answer is not to give them their own market power, and expect them to protect us. that is the sumo wrestler theory . the result is more market power. the two sumo wrestlers and that shaking hands, finding a path to enrich them both. then, everyone else gets tossed around and flattened. we went providers motivated to lower rates without cutting corners on quality of care. responding to competition versus knuckling under to a market dictator. true, an ensure of a certain size can get providers to accept rates by offering access to

enough patience. they could get there by expanding on their own. a track providers and consumers is different from having the power to make them an offer that they cannot refuse. competition keeps the business insurers better aligned with the interest of consumers. the justice department investigation is just getting underway. we want them to be very thorough. and for the department to act aggressively to protect us. thank you. senator lee: thank you, mr. slover. our first round of questions will be by chairman grassley who is with us, but has to leave in a moment. we will have five minutes and then five minutes for senator klobuchar, and that i would take five minutes.

chairman grassley: thank you. i put a statement in the record that i would have given had i been here on time. there has been a good deal of discussion about efficiencies. both of you expect, mr. bertolini, i believe you over $1te saving billion quarterly. if there were not cost savings, i do not suppose you would be pursuing these mergers. how would these mergers affect ordinary consumers and iowa two or three after the transactions, owans have differences in their experience?

summing this up, how will it affect consumers in my state of iowa? olini: this transaction is largely about medicare advantage, so i will speak to the medicare advantage marketplace in iowa. have hada and humana very high quality scores. all of our markets are at 80% or better for a four plus star rating. alone, it at aetna was based on our ability to provide an affordable product at the market. ourhas gone down 6% -- ar rate has gone down 6%. we continue to see a decrease in pricing, a broader benefit structure for, and offering for

seniors. we view the product as high quality and very affordable. a vast majority of our members are low income members. we provide we are providing a valuable product and service to seniors. mr.rman grassley: sweetness, from your point of view? a very important question with respect to how we were engaged in the marketplace regarding the commendation of these two great companies. anthem believes that there are two core pillars as to how we engage in the marketplace providing on provider collaboration, building up affordability, and recognize that this truly is a locally driven pursuit, in terms of providing true value for consent consumers.

we believe it will translate to .enefits for consumers for example, converting real data to information that can best be used to providing better , and engaging with patients. we believe that we will be able to combinehat with many other opportunities that will drive premiums lower for our customers. that is certainly a commitment we have repeatedly made and have evidence to that effect today. chairman grassley: mr. pollack, if the department of justice concludes that it will be to competition, typically be remedy is for justice to allow .or divestiture in both of your letters,

regarding these deals, you appear skeptical that this will remedy antitrust concerns. why do you not believe it can remedy antitrust concerns that may arise? k: if you look at the notion of who would be a suitable acquirer, as it relates humana, we have identified over 1000 counties -- the question is who would be a suitable acquirer in that sort of divestment arrangement. it just seems so large that finding someone that could come and i've put together the networks, and send those communities just seems to be a very difficult objective to achieve. i only havessley:

11 seconds left. i will put my last statement to mr. swedish in writing. senator lee: without objection. senator klobuchar: thank you very much. i guess i will start with you, swedish.lini and mr. why you havelain to have these mergers to get to where you want to be? we have heard contrary testimony from some of the other witnesses. i: thank you. we believe that our accusation -- acquisition is not one of seismic capabilities. humana has taken a step forward in ensuring that health care can be provided in the home. as a matter of fact, in 2014, daysa had 496 more member at home by providing care at the

home and bringing the logistics of people, stuff, and technology to people's homes -- increasing healthy days. our view is that we want to acquire these capabilities and expandable across our business as part of our acquisition. senator klobuchar: could you do that on your own without them? olini: we can do it on her own, it would take longer. we believe the need is today, not in three or four years. senator klobuchar: mr. swedish. keep it short. mr. swedish: let me begin with a portrayal of what is being created. two companies with different portfolios that are highly complementary. each company has obvious strengths. other company will benefit from versa.engths, and vice

as an example, in terms of the consummate any nature, we are both serving a very large national environment. having said that, we also accounts that national , typically an administrative type of arrangement. thesavings goes directly to employers. what we know is whether it is a national account or an individual account, with respect to serving exchanges, this is all local. every service we provide the distilss down. senator klobuchar: i have some other questions. do you think given the changes in this industry, there are other factors they should be looking at? if anyone wants to take a stab. dr. dafny: i will.

the department of justice will consider all of the factors, but it might also spend some time thinking about the potential for a diminution of cross market competition. there is evidence of that in the hospital industry. and it is possible that it may lessen the intensity of the competition. we are not an expert on this but one of the questions that needs to be looked at the blue cross blue shield rules that give control over lives in multiple states. there is an extensive into contention in the blue system, and the anthem, cigna deal will create large barriers to entry. thatnk that is something is to be examined as well. you talkedbuchar: about how you work against the consolidation on the insurance side but you think we believe

that we need more of it in the provider side. could you reconcile that? have had some consolidation, there are some advantages to it. at the has contributed to higher prices. mr. pollack: what we've seen in terms of highest growth -- price growth going up 1% as fast here. more significantly, it is the objective of hospital consolidation. that is to provide networks of teams of caregivers that can move us in a direction to better coordinate care. study, looking at hospital mergers over a five year time span, where there were 600 and seven over 12 are sent over that time. that when you look at the 607, all the 22 of those mergers still left five hospitals in the market after the merger.

if you look at the ones that did not fit that category, most of them were saving hospitals from going bankrupt for reconfiguring the many different way. senator klobuchar: would you agree with that? mr. slover: we are concerned about all consolidation at any level. it is a question, the benefits of the integration coordination we are hearing about here all make sense of to a point. the point where we get concerned is when it goes beyond being able to provide a better service , and being able to exert leverage over others to reduce their ability to make choices. ultimately that reduces consumer stability to make make choices. if there is a hospital network that has too much of the power in a local market, that reduces choices or providers and for insurers.

similarly, if there is a doctor or practice that has everybody, then they are the only game in town. i think it needs to be looked across the board. senator klobuchar: thank you. mr. swedish, i will start with you. i have a few questions at the outset of how cigna would be integrated into anthems blue cross and blue shield plans. my understanding is that as a member of the blue cross, blue shield association, and thumb is subject to something halt the best efforts rule, which correct me if i misstate this, but it thatres among other things no more than one third of anthems total health care non-blueay come from branded health plans. my first question is, what does not limit your ability to compete under the cigna brand if this merger were completed?

mr. swedish: thank you for the question. are a lot of questions about blue cross, blue shield, and our delivery in the marketplace and we are licensed. we do not compete in other states like the way of the license agreement we have the association. we are strictly performing in those 14 states. what will happen with spec to the cigna acquisition is the fact that in so-called non-blue , though states outside of our 14 state domain, cigna will compete and will be a competitor in the murder latest month competing against the blue cross, blue shield lands in those states. within our own 14 states, the cigna brand and products may in fact come into our blue cross

portfolio within those states. however, in the national account space, it will continue to compete with cigna. it is a combination of placement that is basedntry on our blue state and are non-blue state, where cigna will compete. with respect to the best efforts rule that you brought up, we do need to comply with the rule. to theot need to respond rule in terms of how he will comply until after the transaction closes and then we will have two years thereafter to adjust our portfolio. we do not believe that will be an impediment to the deal, nor do we believe that will resent any kind of competitive deterioration in the marketplace. today cigna has every incentive.

it is in such a fight is naturally because of market forces to compete as vigorously as much market share as possible. --e the best efforts rule what is not necessarily cap and limited their future competitiveness? believe it is the opposite. we believe our acquisition will ine the cigna brand stronger terms of the non-blue states, where they will compete against all plans. be ank there will significant upside to the brand in those markets with wrist that to whether provide support to national accounts, large group, or other methods that will engage in the marketplace. senator lee: i have another question that i want to ask those of you and to mr. bernal bertolini.

tell me how these benefits would be merger specific. like a those benefits not be achieved in the absence of the merger? >> thank you for the question. it is about capabilities and presents the marketplace. having a footprint of products. this discussion earlier of living in two worlds, fee for service and value-based insurance design, the world through to know you have included in the new design, the easier it is for the provider to transition. from our point of view we have not had the opportunity to provide the products by market where we can engage in a full conversation about the changing model to anue value-based model.

senator lee: with respect to our engagement, we believe that there are three core element. theswedish: focus on consumer, focus on the provider, focus on the volume that is delivered to the consumer. with respect to volume-based , justt methodologies within the last three years we built out a value-based hate reimbursement effort that now totals 53% of all of our pavements to provide our rally race -- our value face. we have infrastructure combined with the cigna infrastructure that we believe will accelerate in a very fast-paced value-based payments, so the marketplace can go to the consumer. as an example, we have 100 the -- 158 aco is.

we have over 100,000 physicians participating. we believe we will deliver tremendous uptake in value that .he not been se senator lee: senator franken? from this.to depart i was listening to mr. swedish cigna, which is against blue cross blue shield. and when people too. skepticism about your answers, and i want to make

these answers short. dafny, you share with me a little skepticism because i plansthat all of cigna will not be able to compete with the blue plans in many of these markets. dr. dafny: thank you for the question. my first response is to regard to the national plans. the notion that they would continue competing in that segment. the samegoing to be entity, so they might have two names, but do not see how that competition from with respect to whether the agreements with the blue cross, blue shield association would inhibit the expansion of cigna as a brand. that very much depends on how big they are and the various market and whether they would exceed the threshold. i very wish i had the data to

assess the veracity of the claim that that is binding. >> i will continue on because you spoke to it. i got to go pretty soon to vote . let me just as fast. i wrote the. lost provision in the aca, which insurersknows requires of their least 80% premium dollars on actual health care for large groups. says this is billions of dollars for consumers. i am just a little worried about a couple of things. ny said it can be

repealed. i hope not. mlr hasspeak to how been sending money for consumers and made competition better in the insurance market? mr. slover: we are strong supporters of the medical loss ratio requirement. we are very glad of the law. it has brought tremendous benefits to the consumer issues. it has been disciplining offshore spending. that oneonly in dimension. it works very well in that one dimension to put a floor on the the other of address ways that competition can be affected by mergers. if we lo the competition among insurance companies in the non-

price way, not just about race, to measure. we think for all of the gray work that they have done, it works better in conjunction with a competitive market. >> absolutely. bertolini and mr. swedish, you commented how these savings will pass on to consumers. when you convinced that the savings will go to policyholders? mr. bertolini: we commit to trying to work with the changing relationship with providers -- >> and that is not the answer to my quest. d commit to giving this to your policy holders? the savings you will have by

virtue of being able to do this merger? mr. bertolini: we will need to do that and more to make audits were affordable going forward. >> that is not quite an answer. when you commit to passing on the savings to your policyholders? >> are savings will be passed along in the price of our product. >> do you commit to passing along all the savings to your policyholders? >> we are driving affordable and for all of our customers we are committed to balancing the investments that are necessary to improve our products for the benefit of our consumers. believe by definition that generates a savings that goes to the consumer. >> do you commit to pass the savings on to the consumers? to theould do so extent that we are providing a balanced portfolio in the market place that is driven by grade

value, grated desires of the customers want us to address, and i do believe that all translates to improve the tradition of savings to the consumer. >> i'm out of time. i do think we can have gotten quicker if those answers were yes. i'm going to go vote right now. thetor hatch it will assume gavel while he does his questioning for the next few minutes. i will be very fast, but if i'm not back we will go into a recess until senator klobuchar and i are back. >> thank you, mr. chairman. to me just ask this question mr. bertolini and mr. swedish:. argue that enter into the health insurance market is

difficult because it requires the entrance to assemble a broad provider network and obtain licenses and discounts to leading incumbents. do you agree with that? if so, why or why not? our acquisition is largely a medicare advantage combination. it will be very low impact, if any on the market place. we see no effect related to market entrance. however, there are 400 commercial insurers in the marketplace today. , 75 thee new entrance last three years on the public exchanges. they begin to offer more products and services, we think there is a robust competitive market. there are 10 in the overlap 10 commercial competitors in the public exchange markets today. mr. swedish: thank you for the

question. price.d looking at the cigna in theh [indiscernible] looking at the space is very important. [indiscernible] we have to witness tremendous growth in the number of clients.

we are offering health insurance products to the marketplace. again, i believe competition is robust. the entrance points are many. it is producing tremendous opportunity for the market to receive excellent services for many health plans going forward. >> thank you. mr. slover? based on past experience, how likely are enrollees to change plans when premiums go up or benefits are cut? if the post merger and the word to raise prices or granted service, how likely is it that they would lose subscribers? there is probably something sticking effect of to

a place that consumers are going to stay with who they have an employers are going to stay with who they have. but it is important that they have a choice, another place to go. a place they can get as good a coverage as i had before, were better coverage at a more affordable price to to have those insurers competing against each other to hold each other in check. what we are concerned about, and this is something that the -- justice department is going to have to look at each of these markets is how it will do that and this -- risk losing that benefit. can you comment on his comment? like politics, all health care is local. there are many competitors and a lot of variability in each marketplace.

in the medicare advantage, where we are, which was a large strength you position, there are 18 different plan options on world to seniors markets and in world markets there are 10. . e lots of choices still available. the government benchmarks which we compete with still drop every year. the market is still very competitive. wall street is investing in new entrance to the marketplace. the plan which entered the new york market just received $32.5 million to open a new place. >> i simply reference dr. paper.rg's

states that 15 of the 28 new veterans into medicare advantage between 2012 and 2015 our health systems. plansvider response offered coverage on the public i simply want to underscore the there are many new entrance to the market base, oscar being one. itt is probably more recent is cold out quite frequently as a entrance that is having greater success of market ways to again, competition is becoming more robust in every second or of the health plan marketplace. >> what is the relative market or markets here?

>> i would say that there are two markets that are particularly easy. one is the individual market. the authors medicare advantage. this is where you are seeing the entry. i do not think you're seeing that much in other markets, but as the other witnesses have said, i think those markets are becoming more competitive. is the national market? is that each state market? or is it some number of smaller geographic markets? and should traditional medicare and medicaid the part of the same or different markets? do we need to redesign the health insurance market?

dr. ginsburg: it is very challenging. some of the large group markets like local markets. medicare advantage is a very local market. large self-insured employers, and a lot of that is a national market. quite staying. i would concur that market definition depends upon the access channel. commercial populations and medicaid advantage. >> humana would increase the score by over 200 points.

in 1924, they concentrated markets. another159 points and set of highly concentrated markets. the association similarly argued that the cigna merger would increase the growth by commercial insurance. you first, but then do you agree with those calculations, and if not, why not? the merger. the increased market power. will point to a comment but dr. ginsburg made earlier in the concentration is just one measure of potentially competitive issues.

indexot an expert on the area i have enough to do in my day job all that i can think of relative to medical ulcerations of the like. we look at the markets were in and humana compete. we have 18 competitors and enrolled markets we have 10 competitors. we see plenty of competition, plenty of entrance. made more than half of school systems, and we viewed that in the event we get to a point within the department of justice where we need to invest to get the best interest, the hospital systems that will want to have an opportunity to end this market. dr. ginsburg: i am not -- mr. swedish: to

the department of justice, regarding their assessment of combination of these, that is probably the best that i can offer at the moment. >> it is interesting to me. we will recess until further notice, they will be back shortly. we will just recess until the senators get back.

>> is health insurance hearing sotaking a brief break they can attend votes in the senate chamber. 60 votes needed to advance the legislation. the senate has just locked that bill. the telly has come in. tally has come in. this is similar to a measure passed by the house last week. live coverage of the debate on c-span two. pope francis coming to the u.s. today after visiting cuba this morning. in thet stop is here nation's capital for three days. chaos manyr traffic

offices are living workers to their jobs from home while the pope is visiting. we will have live coverage when president obama and the first lady will be greeting him at andrews base. the last hope to visit the u.s. was greeted at andrews air force base when it was the cold andrews air force base. president george bush and barbara bush joined him. we agreed to show you the speech the sixth. paul

john paul ii served from 1978 to his death in 2005 the second longest serving pope in modern history. of next american history tv looks back in 1979, while he addressed the united nations assembly. scenes of extensive him greeting dignitaries.

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>> senator klobuchar is next.

senator klobuchar: thank you mr. chairman. thelked a little bit about health insurance cal consolidation. we have a little bit more luxury of time now. if you could finish up, i was asking you about why you needed to achieve these cost goals that you have. thank you for the follow-up question. when i would like to do is describe to you the various products and services we do offer in terms of how we segment our business this is a highly segmented industry that serves a very focused effort in and around the local markets. we are very, active, as in cigna, and the national marketplace, serving large accounts, large national

accounts. these are very sophisticated, highly educated buyers of health care services. typically is a consultants who then rely upon them to make the selections are for the health plans that will serve them. they will choose to or even three health plans. a very competitive landscape in the national account marketplace. so specific to your question about why come together, we will both a better able to serve that customer base of national accounts that are highly desiring our support as an administrative service only support team to what they need in terms of health plan delivery. but wouldscinating people ask about the competitive landscape was specific to national accounts, is that there are 130 unique health benefits companies serving that health insured marketplace. in 2014, there were new

companies that began competing in that space. in 2014 thatted there was an average of 11 insurers competing in the large group market place with specific contracts. you can see that the combination of our two companies in an area where most are active, is very valuable to the customer. let me go to another environment. mentioned, we do not cross over at all. they do not have small group. we will continue our small group coverage and competition in the markets we serve. with respect to the individual space, especially in the exchange environment, they have a very small market presence in the individual space. today consumers can choose from an average of 40 plans that support their choices. all about choice,

whether it is a national individualall group, plans, we are coming together. finally, the complementary nature of the two companies allows us to combine to access their expertise in international markets, which we do not have a presence in that space, and finally services like wellness programs are very vital to moving the needle on value for the customer. cigna has a phenomenal wellness program that will integrate with us which then translates to more value for the consumer. servicesducts in brings vital marketplace that i would argue -- argue his accidental and value of what we can have as a standalone organization. oneoth believe one and equals three in terms of how we serve the customer. you both havehar:

the studies that you're relying on on holiday show that you have talked about. -- could you explain more later women's terms? how this will affect consumers? i would say that certainly the literature on insurance consolidation is a very limited one. i think professor daphny's study which was 15 years ago is well regarded. she's quite how difficult it is to do these studies. the information on provider mergers is much clearer -- senator klobuchar: what does the show? dr. ginsburg: hospital prices lead to higher prices.

extensive literature that has been synthesized by some very good people. nevertheless, i think that there dimensions that are quite relevant besides consolidation that either policies -- the policies can make the markets much more competitive and this is what has happened in the affordable care act. senator klobuchar: we do have a lot of that in our state because with geographic disparities between parts of the country, and the fact that certain states in certain regions of the country seem to have more incentives, it makes it more cost-effective and higher quality. that is what i've tried to get, which could be a potential solution. hasaffordable care act those incentives, but we have not seen the full results of him. we have seen some.

think one of the oxides to consider and not placingt is -- we are it in bed as a country and alternative payment models, value of payment is really the only thing we have to try to address cost on a long-term basis. specificsere are some where insurer consolidation can lead to this trend moving forward more rapidly. i think the role of medicare has been and will be very important in this trend. to move all of their patients from fee for service to value of payment models. thedafny: i'm delighted by question. in addition to the discussion of the prudential merger, there is

another large merger in nevada, united and sierra. it is increased to 14% in the smoker premiums. i have done a study on the individual insurance exchanges, this demonstrations leads to lower prices. we estimate that in those areas where they had a bigger presence in the insurance market, premiums on the insurance exchanges were higher. premiums matter today. senator klobuchar: thank you. lee, thanku chairman you for being here today, and for the excellent testimony you offered so far. i immediately concerned about these mergers because of the potential effect on competition and the concentration of power in fewer hands. i have expressed those concerns

publicly in some sense. like thefeeling that saying about marriage, this merger may be the triumph of hope over experience. that is suggested by a lot of the scholarship in this area that consolidation is so rapidly taking over this industry -- we've seen it in other industries and we've seen me consequences of it in higher prices. the consequences potentially higher premiums. i'm troubled by the evidence that shows that neither providers nor consumers benefit from the consolidation. in other words, that the premiumse shows that are not lower. consumers do not benefit, and the savings are not passed along to consumers.

wade. these raisethink those competitive concerns. conducting ao market by market analysis, i believe that the department of justice must also scrutinize these mergers together, altogether. as part of a single national health care market. be tuesday --o sustain and enhance competition while protecting consumers. i want to focus in particular on an area that has not been covered so far. barriershe issue about to entry. as you may know, in 2010, former assistant attorney general explained the results of a review of the antitrust division into the question of barriers to

entry in the insurance marketplace. this was for conclusion. -- her a conclusion before the americas are association. expansion in health insurance market, and are p significant to the formal care act. it is incredibly prevent mergers that would create or increase in thee of dominance health insurance plan, particularly in the small group and individual market. entry defenses in the health insurance industry will be viewed with skepticism. , she was talking about the doj. they will almost never be competitive in merger. i think it is the color of the

argument for this merger that these barriers to entry are insignificant. experience belies that contention. i like the responses from mr. iftolini and mr. swedish:, you could. mr. bertolini: i understand your point of view. i would like to make clear what the data shows us in the markets where we compete. ismedicare advantage there plenty of competition. 28 new entrance, more than half hospital systems over the last three years. more and more hospital provider systems, more than 70 new competitors on the public exchanges. public exchanges, where we have overlap between and not and humana, there are at least 10 other competitors. street and by wall

starting new health plans is by google for three expansion in the global marketplace. at the local level, we continue to see more entrance, and for competition. at all concerned about the lack of competition in the local markets. in medicare advantage specifically the government sets a benchmark which will where's us to beat in order to offer zero premium plans to consumers. we have, over the last five years, from 2010, reduce that by 6% in medicare advantage to the benefit of seniors with a higher quality of product and more affordable product each year. thank you.:

if i understand the question, it is dealing with barriers to entry. the perception that barriers do exist shows that new entrants, not, and to the microplates -- cannot come into the marketplace. >> there are powerful barriers to entry. i cannot just start an insurance company that will have any hope of competing with the combined entity once this transaction is completed. yes, all health care is local. local, but there is national politics, there are national markets. those markets are profoundly important for the department of justice to review and scrutinize this murder -- merger because of the barriers to entry. that is true other industries as well. that is a perspective that prompts my question. mr. swedish: i appreciate that perspective. what i can share with you is

there are many new players that have entered the market and continue to enter the market. what i would like to do is begin with reference to oscar that is virtually the -- that mr. bertolini just brought out. it is a highly competitive marketplace. they accumulated 45,000 new members and the company was founded based on venture capital funds and just recently a google investment that will accelerate their engagement in the marketplace by going to california. again, one company, multiple only underscore the bigger view. as we deal with the national marketplace for a large group and national accounts, which we have witnessed this 30 new companies that have entered the marketplace, competing in the national accounts sector.

gao report run on the fact that on average there are 11 insurers competing amongst themselves for national accounts. slice ofect to another development in the marketplace, pwc, in 2014, revealed that 50% of u.s. health care systems had 37intend to imply -- provider sponsored plans are now in the exchange environment. my point is that a petition is becoming more robust, not less our combination with cigna, quite frankly we are compatible, complementary companies, without a lot of

overlap and how we engage in the marketplace. in that regard i believe we will bring greater folly to our customers and we won't compete very effectively the marketplace virtue of this combination. time has expired. i want to thank both of you for your very informative responses. i think we've only begun to scratch the surface in terms of the data and the material that has two preview by the department of justice. i hope it will be exacting and demanding as you expected to be. there seems to be very different .actual perspective here professor dafny, and i think it may result in the are slicedvy markets

and diced. i hope the derivative justice will get the national department, rather than only global markets. insurance is not all local. thank you. senator lee: senator tillis? >> thank you, mr. chair. thank you for your testimony. i apologize if i had another meeting, a vote, and another meeting. it is not for lack of interest -- i will be revealing reviewing the comments from my colleagues. this is a very complex process. the competition, the saturation, all of these other things, a number of the things that dr. death he mentioned that go beyond. the thing is that we tend to look at it i am glad that

congress on their way fed to make this task is something that the doj would do. this is for a variety of reasons. market concentration is what i do what i am at the grocery store trying to figure out what my wife asked me to buy when i went there. the way you look at market concentration here and all the other factors i think it is appropriately in an area that should be making judgments on a nonpolitical basis. on the merits of the deal based on factors that have been outlined. thiswill help with particular transaction. policy thatpublic has been outside forces causing some of these things to incur, either of insurance industry, or the hospital industry. my question is, do you feel like goight of where we should and health care and future of the nation, that the process we

have in place in the doj is decision produce a based on the parameters set forth? the first is something that may be influenced by an outcome that better serves an agenda item. i will start with dr. ginsburg. dr. ginsburg: certainly, from a justice that is guided by the age-old trust books, which i think served our country very well, clearly there are judgments that are hard judgments to make. i cannot get into the minds of the officials in the justice department as to how they will not come out. you retire as i think they are

very complete. very expect it will be a fair and appropriate process. >> payment data person myself. i ran an analytics practice before he got into politics. do you feel if the process today you have enough insights now? united coming from a different frame about argument in the data, but do you feel like the process appropriately incorporates considerations for the kinds of things you look at when you're studying this? confident in the process from the department of justice. i am wishing of the public had access to the information to perform the analysis. some of therstand competitive elements that had to be taken into account. trendms to me that one with cause the other trend to occur. i know in north carolina have had a lot solid asian, to your

point we have had a hospital in rural areas, and before that it may have put us out of business, diminishing our ability to serve ral population. by the same token, you have mentioned how it has improved outcomes, and delivery of services. it has also created large provider networks. of the advantages to the kind of mergers that we're talking about here, and i am not missing the sumo wrestler and all you see -- analogy, but as long as that trend continues, it seems to me that someone who is involved in strategic sourcing and supplier negotiation will have a valid argument to the veryt that you have a

serious problem with the cost of pharmaceutical. i will start with mr. swedish. if i understand the question, it is about provider consolidation. isprovider consolidation something that the hospital industry has used as an argument for improving care reducing cost. in part ofnk that your argument, there is fairly clearly a model you want to adopt and have her evasive in terms of the products and services you provide. what i'm getting to is the business of your business. where you have to get out there and ultimately negotiate provider rates that fit with the reducethat ultimately

the cost of pharmaceuticals and services you are providing. it seems inconsistent to argue that the consolidation of hospitals to address their challenges is ok, but the consolidation of interest companies, if they fall within the doj constraints for such a merger, would not be ok. the trying to understand inconsistency or not inconsistency. one, oursh: organization, anthem, has developed a value-based infrastructure. models.ernative payment we have a hundred thousand physicians participating in that model. they are part of the model going forward, to your point. sigma