Health Insurers Hustle to Show Bigger Is Better

Health InsurersThe health insurance industry is drawing comparisons to PacMan, Game of Thrones, Survivor and of course the classic game – Monopoly – these days. While some companies started engaging in a merger hustle before last week’s U.S. Supreme Court decision on the Affordable Care Act (ACA) , but the frenzy has grown with the announced mergers of several health insurers hoping to capitalize on the court decision and show investors that bigger is better. Not survival of the fittest, the objective seems to be more about gobbling up the most insureds to have more clout in the industry.

Aetna Inc. made the latest move in the merger minefield. The insurance company announced on Friday that it made a deal to purchase Humana Inc. for approximately $37 billion in stock and cash, which would be the largest takeover to date in the industry. On Thursday, Centene Corporation announced it is buying HealthNet for about $7 billion. Last week, CVS purchased Target Corporation’s pharmacy business for $2 billion.

The Aetna deal will be scrutinized for antitrust purposes, but is expected to go through. The resulting company will still be only third in policyholders, just behind number two Anthem Inc.

However, antitrust authorities are expected to pay particular attention in this deal to the combined company’s impact in different markets and may require some changes for the deal to be finalized. Humana and Aetna both have a sizable presence in the Medicare supplement arena. For Medicare Advantage plans alone (supplement C), the duo reportedly issued more than 50 percent of all policies sold in some states, and more than 80 percent in Kansas and West Virginia.

Overall, the merged firm will receive about $63 billion in revenue from the government’s Medicare and Medicaid programs this year (about 56 percent of total revenue).

Aetna said the combined company is projected to have over 33 million medical insurance lives covered, as of March 31. Operating revenue is expected to be about $115 billion this year, with approximately 56 percent from government-sponsored programs including Medicare and Medicaid.

This paints quite a different picture than those who claimed that the Affordable Care law would be bad for the insurance industry and result in staggering rate increases. The ACA put limits on health insurers’ profit margins, and there was uncertainty how the exchanges would operate. However, after two years of experience, a frenzy of deals began. (Some have suggested that the health insurers need to consolidate because the ACA says they need to keep administrative costs in check. However, none of them have cited that as a reason.)

The merger activity is not a fight to be the last survivor. They are more a result of considerable profits to be made, which has definitely piqued Wall Street interests and investments in the companies. Reportedly, an index of stocks from the top five largest health insurers (Aetna, Anthem, Cigna, Humana and UnitedHealth) returned 270 percent since the ACA passed. By contrast, the Standard & Poor’s doubled during the same period.

Clout negotiating with hospitals, doctors and other providers is another appealing reason for the health insurers to merge and immediately gain larger share of the market. Doctor groups and hospitals fear larger health plans with greater control on provider networks and contracts will squeeze payments they receive (Of course, many of those hospital chains have also been merging, too!)

An American Medical Association report last year noted that a single medical insurance company already had 50 percent or more of the commercial health insurance market in 40 percent of American metropolitan areas. Additionally, there is an antitrust lawsuit in federal court again the Blue Cross and Blue Shield plans for allegedly conspiring to fix what they pay medical care providers.

There will undoubtedly be a lot of additional changes in the next few years in the aftermath of the Supreme Court ACA ruling and market changes. In the meantime, while purchasing decry the lack of choices in insurance plans and provider networks, the large health insurers will hustle to show Wall Street that bigger is better.

Written and edited by Dyanne Weiss

Sources: Aetna to acquire Humana, combined entity to drive consumer-focused, high-value health care
Newsweek: Aetna to Buy Humana for $37 Billion in Largest insurance Industry Deal
Financial Times: US health insurers: as good as it gets
Forbes: Aetna Buys Humana For $37B, But Deal Doesn’t Add Up
Forbes: Doctors, Hospitals Brace For Larger Aetna, Anthem Or UnitedHealth

One Response to "Health Insurers Hustle to Show Bigger Is Better"

  1. Pingback: Latest Wall Street Survivor Game News

Leave a Reply

Your email address will not be published.