Merger deal would create health giant

Aetna gets qualified OK to buy Prudential unit

June 22, 1999|By LOS ANGELES TIMES

By the end of the summer, one in 12 Americans will be covered by a single health insurance company, Aetna-U.S. Healthcare, under a proposed merger approved yesterday by federal regulators.

Connecticut-based Aetna, already the nation's largest health plan, will increase its membership by 50 percent, to 21 million, now that the Justice Department has given the green light to the company's proposed takeover of the Prudential Insurance Co. of America's health care division.

As part of the $1 billion deal, regulators are requiring Aetna to sell a portion of its health maintenance organization business in Dallas and Fort Worth, Texas. The merger is still subject to approval by six states.

Doctors and consumer groups fear that an engorged Aetna will dominate so much of the market that it will be able to raise premiums and depress physicians' pay without fear of competition.

"Five health plans in California have 90 percent of the market," said Jack Lewin, executive vice president of the California Medical Association, which represents doctors. "That means that health plans become like 800-pound gorillas, dictating to doctors."

Many companies in today's health insurance market believe that the only way to survive is to grow large and concentrate on health care coverage alone. Indeed, Prudential had been one of the last traditional insurance companies to cling to health care as part of its product mix -- until the decision to sell out to Aetna in December. While Aetna's growth may help it survive in a difficult market, the company's dominance raises significant questions for consumers.

In Texas, for example, the merger would have provided Aetna with 63 percent of the market in Houston and 42 percent of the market in Dallas. For that reason, regulators ordered the company to sell its NYLCare HMO in those areas.

In other parts of the country, however, the merger does not pose a threat to competition, the Justice Department concluded, despite the new company's size.

"They're big, but when you look at the whole industry, health care is relatively unconcentrated," Patterson said.

Pub Date: 6/22/99

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