Ari Goldfarb is communications director with Buffalo-based Goldfarb Financial, and published novelist whose works include Just Under the Sky. His series with Buffalo Rising comments on the intersection between finance, economics and pop culture.
Since Teddy Roosevelt’s trust busting policies of the early 20th century the United States has maintained an anti-monopoly brand. It was the land of opportunity, driven by competition. In some regards, the country still lives up to this identity. The Federal Trade Commission has conducted several investigations over the past few years in energy leaders including a recent conclusion in February 2016 with ArcLight Energy agreeing to divest in Pennsylvania.[1] A month later Halliburton and Baker Hughes called off their $28 billion merger.[2] This merger would have combined the 2nd and 3rd largest oil service companies and raised concerns among both American and European antitrust regulators; but why do we hold historical perpetrators to a double standard, turning a blind eye to other sectors that are dominated by a small handful of industry leaders?
Look at our cable and broadband services. Comcast was able to purchase NBC back in 2011 and Charter Communications’ purchase of Time Warner was just approved this month. With close to no competition in our cable and internet industry, Americans are being overcharged for mediocre services; we pay more than any other advanced country for internet and cable services, yet have slower speeds; PBS reports that a New Yorker will pay double the cost of internet than someone in London, Paris, Hong Kong, Tokyo or Seoul, and move 8 times slower.[3]
PBS reports that a New Yorker will pay double the cost of internet than someone in London, Paris, Hong Kong, Tokyo or Seoul, and move 8 times slower.
We also have seen the deregulation of banking in the ‘80s and ‘90s (under both Republicans and Democrats) lead to the near destruction of small provincial banks, many of which were consumed by the Big Five (Citi, Wells Fargo, Bank of America, Chase, U.S. Bank Corp).
One of the largest contemporary slip ups by our government against monopolies has been Health Care. The United States currently spends just under $9,000 per person for healthcare—over 16% of our annual GDP.[4] That is more than any other developed country in the world. So why are citizens still left footing the bill? Where are the results?
Many Americans (and American companies) are taking the tax penalty rather than the insurance because the penalties are cheaper than the premium: “In 2014, the first year the law was in effect, about 7.5 million Americans paid a penalty for going without insurance, at an average of $200.”[5] Since the Affordable Care Act went into place there has been a rapid increase of consolidation in the health sector.
Only a few days ago (May 3rd) IMS Health and Quintiles agreed a $8.75 billion merger.[6] A 2015 report from Wharton shows that since the implementation of the Affordable Care Act, there has been an increase in mergers in the health field: “100 deals were completed in the sector in 2014—up 14% from the previous year.”[7] While some Hospital executives have claimed the consolidations will lead to lower prices, outsiders such as Lawton Burns, believe the lack of competition will have the opposite effect.[8]
This is not to say all consolidations in the health sector are bad. Abbott’s recent merger with St. Jude leave many optimistic as the two leaders in cardiovascular medical devices offer many complementary services; While Abbot is a leading producer of heart stents, St. Jude offers “complementary products like pacemakers, heart valves, and devices to treat atrial fibrillation.”[9] But a lack of competition has historically led to organizations offering less than stellar products for higher prices.
One deal that made many people nervous last year was the $54 billion merger between West Coast insurance companies Anthem Inc. and Cigna.[10] The merger would have combined California’s 2nd and 7th leading insurance companies,[11] however recent reports show the deal may be further delayed (if it goes through at all). While both companies are working towards regulatory approval, California consumers have voiced concerns. The merger would create one of the largest insurance providers in the country and locals are nervous for skyrocketing premiums.[12]
Between 2009 and 2010 America’s Health Insurance Plans (AHIP) spent over $100 million in lobbying costs to combat and tweak the Affordable Care Act.
Between 2009 and 2010 America’s Health Insurance Plans (AHIP) spent over $100 million in lobbying costs to combat and tweak the Affordable Care Act.[13] As a result we now have a system of a handful of large health care providers capable of horizontal control of premium prices. These statewide hikes are not nearly as high as Republican frontrunner Donald Trump states (He suggested rates are going up as high as 55% when only 7% proposed a rate hike were 30% or higher by the end of 2015).[14] However, projections through the end of 2016 do show a potentially hazardous rise in premiums; these tend to range throughout the low and mid-teens.[15] This is not a political issue; no side fundamentally believes monopolies are beneficial for the economy, but over the past few decades both major parties have contributed to their rise.
This article is courtesy of Goldfarb Financial www.goldfarbfinancial.com, a Buffalo boutique independent financial firm.
Ari Goldfarb is not affiliated with Raymond James. Views expressed are the opinions of Ari Goldfarb and the Financial Advisors at Goldfarb Financial and not necessarily those of Raymond James. Goldfarb Financial is an independent firm. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Goldfarb Financial, 295 Main St Suite 914, Buffalo, NY 14203 716-842-0145
[1] https://www.ftc.gov/enforcement/cases-proceedings/151-0149/arclight-energy-partners-fund-vi-lp-matter
[2] http://www.reuters.com/article/us-bakerhughes-m-a-halliburton-idUSKCN0XS1KW
[3] http://www.pbs.org/newshour/updates/internet-u-s-compare-globally-hint-slower-expensive/
[4] http://www.pgpf.org/chart-archive/0006_health-care-oecd
[5] http://www.nytimes.com/2016/01/04/us/many-see-irs-fines-as-more-affordable-than-insurance.html?_r=0
[6] http://www.wsj.com/articles/ims-health-quintiles-to-merge-in-8-75-billion-deal-1462272680
[7] http://knowledge.wharton.upenn.edu/article/hospital-consolidation-can-it-work-this-time/
[8] http://www.usnews.com/opinion/economic-intelligence/2015/08/17/health-care-consolidation-is-a-disease-not-a-cure
[9] http://www.bloomberg.com/news/articles/2016-04-28/abbott-agrees-to-buy-st-jude-medical-for-25-billion
[10] http://www.huffingtonpost.com/lawrence-j-hanley/obama-administration-must_1_b_7977552.html
[11] http://www.breitbart.com/big-government/2015/07/26/obamacares-monopoly-pricing-explains-health-care-merger-mania/
[12] http://www.healthleadersmedia.com/finance/proposed-anthem-cigna-merger-under-fire-ca-consumers#
[13] http://thinkprogress.org/health/2012/06/13/499093/health-care-insurers-spent-100-million-to-combat-the-affordable-care-act/
[14] http://www.politifact.com/truth-o-meter/statements/2015/oct/25/donald-trump/trump-obamacare-health-care-premiums-going-35-45-5/
[15] http://acasignups.net/15/10/29/final-projection-2016-weighted-avg-rate-increases-12-13-nationally
Lead image: MGDboston