Aetna’s arrival will enhance competition among health insurers, but what about providers?

Allina Health Systems and Aetna announced they were partnering to form a new health insurance company in Minnesota.

The announcement comes at a time when insurers are bailing out of Minnesota’s individual health insurance market due to the enormous losses they experienced after the Affordable Care Act regulations were fully implemented.

For 2017 Blue Cross Blue Shield of Minnesota pulled out of the market entirely.  HealthPartners dropped coverage in 56 of the 67 counties they covered in 2016, limiting coverage to the Twin Cities and St. Cloud region.  With these departures, many Minnesotans found themselves with only one option for insurance coverage this year.

One more insurer increases competition
The launch of a new insurance company should help this situation.   More health insurers doing business in Minnesota should increase the competitive pressure in the market to deliver consumers a better value.

However, the Star Tribune reports that it is unclear whether the company will enter the tumultuous individual health insurance market and so people with individual coverage may not find more options in 2018 when Allina and Aetna plan to start offering coverage.

Even if the company doesn’t immediately enter the market, the creation of a new company to serve the small and large group market lays the ground work for entering the individual market in the future when the market becomes more stable.  One of the largest obstacles to a new insurer entering Minnesota’s health insurance market is the difficulty in negotiating a provider network with competitive prices.  By partnering with Allina, Aetna enters Minnesota’s market with a strong provider network and overcomes this obstacle.

Less competition between providers?
Though the addition of an insurer should enhance competition in the insurance market, it’s possible a partnership between Allina and Aetna might actually stifle competition among health care providers.

The new partnership represents a trend in large health care systems aligning with insurers.  HealthPartners and Park Nicollet hospitals and clinics already operate under the HealthPartners insurance umbrella.  Fairview and PreferredOne are also tied together.


A main reason these partnerships exist is to capture patients into one health system.  Views differ on whether this is good for patients.

By being in one system, many people argue patients will receive better, more coordinated and lower cost care.  As the argument goes, providers traditionally have little incentive to coordinate care and control costs when they are paid by the volume of services they deliver.  But when the provider and the payer are partners in one system, they then have a financial incentive and the tools to actively manage people under their care and keep them healthy.  Healthier people equal lower cost people.  Yet, research has never proven these arrangements do, in fact, contain costs or provide higher quality care.

To the extent people are trapped in one health system, these partnerships can undermine value-enhancing competition between the major health care providers in Minnesota.   That’s because when people opt for a narrow network, they limit the choices that will be available to them when they eventually get sick and need care.  This lack of choice limits competition between providers for the treatment of a specific illness.  For instance, a woman diagnosed with breast cancer will not be able to consider cancer treatment centers outside the narrow network without considerable out-of-network costs.

The question then becomes, where does competition within the health care system drive health care to the best outcomes. Is it better for competition to occur at the health plan/network level or the treatment of specific conditions?

Back in 2004, Michael Porter and Elizabeth Teisberg—professors at Harvard and University of Virginia business schools, respectively—answered this question in their book Redefining Health Care.  In a Harvard Business Review article summarizing the book, they explain:

The most fundamental and unrecognized problem in U.S. health care today is that competition operates at the wrong level. It takes places at the level of health plans, networks, and hospital groups. It should occur in the prevention, diagnosis, and treatment of individual health conditions or co-occurring conditions. It is at this level that true value is created—or destroyed—disease by disease and patient by patient. It is here where huge differences in cost and quality persist. And it is here where competition would drive improvements in efficiency and effectiveness, reduce errors, and spark innovation. Yet competition at the level of individual health conditions is all but absent.

The fundamental economics of health care are driven at the level of diseases or conditions. Numerous studies show that when physicians or teams treat a high volume of patients who have a particular disease or condition, they create better outcomes and lower costs.

If Porter and Teisberg are correct—and I do believe they are correct—then the partnership between Allina and Aetna threatens to further drive competition up to the health plan/network level and undermine competition at the individual condition level.