What Happens In Vegas, Stays In Vegas

Even at the glacial pace of take-over activities in the post-credit meltdown deal economy, merger arbitrageurs speculating on the UnitedHealth-Sierra Health Services spread might be forgiven for dozing off at their trading terminals.

Almost a year ago, on March 12, UnitedHealth Group (headquartered in Minneapolis), announced a friendly take-over of Nevada’s Sierra Health Services. The Nevada Insurance Commissioner green-lighted the deal, but it’s been downhill since then.

Lately, UnitedHealth’s regulatory troubles in California (which I think are overblown) have emboldened the opponents of consolidation, who include the usual suspects: providers and left-wing politicians. But the chorus of critics also includes Consumer for Health Care Choices, of which I am a dues-paying member, and which is a outstanding advocate for consumer-directed health care. On the other hand, some of my fellow members of CHCChoices were a little leery of advocating in favor of the federal government intervening to prevent the merger.

Now that the unfortunate deal has staggered back into the headlines, I find myself on the side of those who advocate federal non-interference in the take-over. Why?

• In cases of mergers that effect market concentration within only one state, the federal government should abandon the field of anti-trust law. Critics claim that UnitedHealth will have 80 percent of Nevada’s commercial health insurance market, and 94 percent in Clark County (Las Vegas). Maybe true, but that need not concern the federal government. Nevada has laws to prevent such consolidation, and it is free to enforce them. I have recently sided with doctors who struggle with the Federal Trade Commission’s obstruction of their ability to organize to negotiate with health plans. While physicians claim that health insurers are oligopolistic, the FTC claims that markets for health providers are local, so too much power would lie with doctors if they were allowed to bargain collectively with health plans. By this argument, the FTC hoists itself on its own petard: Local problem? Local legislation.
• Nevada’s health insurance market is uncompetitive because of over regulation, not corporate strategy. Overall, Nevada ranks an ok 23rd in the Index of Health Ownership, but it’s down at number 36 on the regulation of private health insurance (which comprises 6 of the 24 measurements in the Index). Nevada needs to reduce this burden of regulation, instead of discriminating against business growth by out-of-state competitors.
• Nevada can free its residents to buy health insurance from other states. Undoubtedly, one reason UnitedHealth values Sierra Health is that it gives it significant market power in a state with a fairly small, but fast growing, population – a population held captive by the state’s laws preventing Nevadans from buying health insurance from other states. Freeing Nevadans to buy policies from insurers licensed in other states would do infinitely more to reduce market concentration than preventing shareholders’ freedom to join their two companies will.

So, there you have it: Occam’s razor for libertarians -when in doubt, let the states decide!