Taxpayers Win Big in Cigna-Express Scripts Deal
By most measures the Affordable Care Act (ACA) has failed to perform as promised. Additional government intervention in health care largely hasn’t increased competition and choice for patients, hasn’t allowed Americans to keep the coverage they wanted, and hasn’t bent the so-called “cost curve” so much as shifted it. While Congress has made some progress towardchipping away at the harmful effects of the ACA, the odds of federal policymakers reaching a consensus on a comprehensive alternative remain slim.
But there’s still cause for optimism. Health insurer Cigna’s acquisition of Express Scripts is one vital sign that the transformational evolution in care so many are now seeking will happen outside Washington — as long as Washington has the foresight to let it unfold.
Three weeks ago U.S. Department of Justice regulators gave the green light to Cigna’s proposed acquisition of the Pharmacy Benefit Manager (PBM) firm Express Scripts. Most analysis since has centered on how the rest of the industry could be affected over the near term once the deal is finalized. Lost amid such details is the hope this development offers for patients, providers, and taxpayers.
Cigna’s announcement of its intent to acquire Express Scripts occurred amid a rising chorus of typical and not-so-typical voices proclaiming that when it comes to corporate organization, “big is bad.” But in the case of Cigna-Express Scripts, this chatter is even shorter on facts and context. The Cigna-Express Scripts deal is considered a vertical merger, where one firm purchases another that operates at a different stage of production. Cigna offers insurance products to millions of consumers across the country. Express Scripts operates as a PBM, contracting with large health-insurance plans to manage their drug benefits. Typically, the government does not (and should not) challenge these arrangements because they secure important efficiencies that ultimately benefit consumers.
Yet there’s a much higher purpose at work here than squeezing a few more economies out of a supply chain. The merger represents an opportunity to focus on value, one patient at a time. With Express Scripts, Cigna has the ability to rightsize drug therapies for each patient, asking “will this work in the long run?” rather than “how much does it cost right now?” In so doing, financial discipline can take root more deeply. Focus shifts to preventing big health problems before they occur and avoiding expensive treatments down the line.
Value-based health care has more potential than any other model for delivering the outcomes free-market public policy advocates have long sought: stronger patient-provider relationships, consumers empowered with decision-making over how to deploy resources, limited government interference in the evolution of services, and nimble programs capable of embracing evidence-based results. Ultimately, this will foster an organic fiscal responsibility that is far more durable than complex rules, price controls, or rationing.
But perhaps the least-discussed aspects of this acquisition are the benefits it will deliver to taxpayers, not just customers and clients. According to CEO David Cordani, Cigna aims to achieve across its programs “CPI [consumer price index]-level medical cost inflation by 2021.” This would translate into billions of dollars’ worth of reduced fiscal pressure on federal, state, and local finances going forward.
In 2013 states and their employees spent $30.7 billion to provide health coverage to 2.7 million households of active state-level employees (not including local government workers). Taxpayers covered $25.1 billion of this cost (the employees themselves covered the remainder). Meanwhile, taxpayers foot more than 70 percent of the premium bill associated with the Federal Employee Health Benefits Program, which pays out over $40 billion a year to current workers and retirees. Cigna currently provides coverage in all of these markets. Cigna also offers a range of plans in Medicare and Medicaid, which will be the biggest drivers behind the explosion in the federal debt over the coming decades. Imagine how much relief a value-centric model, applied across the entirety of both programs, could deliver to taxpayers. Official federal estimates project that Medicare and Medicaid combined will grow from $1.18 trillion in 2021 to $1.74 trillion in 2026. If, instead, those programs grew only as fast as the government’s forecasted rate of general CPI for the same period, outlays would be $1.33 trillion — a much more manageable scenario.
At a time when consumers face health costs that often outpace the inflation rate for other goods and services, it is encouraging to see the private sector take a leading role to break some of the structural inefficiencies that have stymied health-care innovation in the United States. Other firms besides Cigna — including UnitedHealth Group and its PBM subsidiary OptumRx, CVS-Aetna (whose merger was tentatively approved this week), and possible new competitors such as Amazon — offer potential for innovation too.
The bottom line for taxpayers is that reorganizations now happening in health care represent the kind of new paradigm that advocates of patient freedom and market competition have always championed in public policy. This reorganization could become a reality sooner rather than later, thanks to private enterprise rather than government action. These mergers also represent the best hope we have right now for steering federal and state entitlement programs back toward sustainability. Public officials must continue to recognize and nurture this trend. The health-care industry is changing for the better. This is something everyone — especially those who pay government’s bills — can appreciate.
Pete Sepp is the president of the National Taxpayers Union, a nonprofit dedicated to advocating for taxpayers at all levels of government.
