How Recent Health Insurance Mergers May Affect Your Bottom Line
Since the Supreme Court upheld the Affordable Care Act for the second time in three years, there has been a frenzy of attempted mergers and acquisitions by healthcare insurance companies. Today, we’re going to take a look at five of the largest health insurers, their various offers and bids for mergers and present it in an easy to follow guide. These insurers are Anthem Inc. (which includes some, but not all, of the Blue Cross/Blue Shield entities), Cigna, UnitedHealth Group, Inc., Aetna Inc., & Humana Inc. Then, we are going to discuss what a merger would mean for providers who contract with these companies.
The Deals
Anthem fired the opening salvo of the mergers and acquisitions frenzy by offering $47 billion for in a hostile takeover bid for Cigna. Cigna rejected the bid a day later, claiming that the bid was too small and not in the best interest of their stakeholders. Another issue for this merger is that Anthem is limited in its Blue Cross and Blue Shield branding abilities, which makes it difficult for marketing Anthem in areas where the company doesn’t have the Blue Cross license or own a Blues plan. This is a major hurdle for Cigna (and any other company looking to work with Anthem) due to the fact that these other Anthem brands are not nearly as successful from a marketing standpoint as Blue Cross.
UnitedHealth Group Inc. reportedly approached Aetna Inc. about a potential takeover that is valued at more than $40 billion. This acquisition would also boost revenue from $181 billion to $247 billion in 2016 based on estimates. The acquisition would also overtake Apple at No. 5 on the Fortune 500, and would make United Health the largest healthcare company in the world.
However, Aetna, didn’t limit its options just to being acquired by UnitedHealth, and has been aggressive about making acquisitions of its own. The second-largest US health insurer announced on July 3rd that it is acquiring Humana Inc. for a reported $37 billion. About 33 million medical members will be under the merged company’s policies.
Cigna and Anthem also reportedly made overtures to buy Humana. Humana was considered an attractive target for a takeover bid because of the strength of its Medicare Advantage program, which is a private version of the federal program.
While there are many mergers and acquisitions talks between all five of these companies, it is important to note that the Humana and Aetna is the only deal that has been announced, and that the “news” on the negotiations is largely speculative. This is a fluid landscape where any of these deals could be completed within the coming weeks, or none of them could, or something completely unexpected could develop.
What does this mean for doctors?
The Affordable Care Act mandates that almost all Americans must have health insurance, and the Act should be a huge revenue generator for healthcare companies. However, the regulations also put in place by the Act limit how much of the premiums insurers can keep for profit, make sure that insurers rate increases are public, and do not allow insurers to reject members based on their pre-existing health conditions. All of these things are potentially detrimental to insurers’ bottom line, and they may look to other sources to maintain and increase profitability.
Mergers and acquisitions are one avenue where insurers could reduce duplicative overhead costs and streamline operations. However, if the top five healthcare companies suddenly become only three, it would increase the leverage of the major players when dealing with government, patients, and healthcare providers. Concentration of the market into only three major players, and possibly fewer, harkens back to the days of oil monopolies like Standard Oil or, more recently, to Ma Bell. The result could lead to higher healthcare costs for all.
Additionally, overhead costs can only be streamlined so much, and regulations may limit the premiums that these companies can charge. Therefore, the insurance companies will likely look at other ways to trim costs. The easiest target is the amount they reimburse doctors and hospitals.
We have already seen this with Medicare and Medicaid, where reimbursement rates have lagged behind the rising cost of treating patients. If the number of healthcare insurers decreases, their individual bargaining power with doctors will increase. Doctors will have less and less freedom to reject certain types of insurance because there will be fewer insurance companies with which to contract, and each will have greater market share.
The current market has already forced many hospitals and practice groups to merge in order to give them greater bargaining power against the insurance companies. This raises its own problems, though, as hospitals and doctors must avoid violating regulatory hurdles like the Stark Law and Anti-Kickback Statutes, in addition to anti-trust laws. Additionally, as practice groups and hospitals merge, corporate pressure shifts focus away from where it should be, and the reason most doctors went to medical school in the first place: to care for patients and improve their lives.
If left unchecked, these mergers carry the danger of making medicine increasingly corporate, increasingly profit-driven, and increasingly distant from the goal of providing optimal patient care. Healthcare providers should keep an eye on these potential mergers and, if they have any questions about how the changes in healthcare law and the shifting healthcare landscape affect their practice, they should consult with an experienced healthcare attorney.