Rumors have been swirling for the past few weeks: Some of the nation’s largest health insurance giants are looking to buy their rivals.
No deals have been announced, but many analysts and policy experts agree that there likely will be fewer companies offering health insurance in the not-too-distant future. But is less competition a bad thing? It depends on whom you ask.
Among the possible combinations: On Saturday, Anthem, the nation’s second largest insurer, said it made a $46 billion bid for Cigna, but that a deal was being held up in part over what role Cigna CEO Cigna CEO David Cordani would have in a merged company. Also late Saturday, the Wall Street Journal reported that Aetna, the nation’s third largest health insurer, had made a bid for Humana, though details were not provided and neither company confirmed the offer. Reports earlier last week also said UnitedHealth Group, the nation’s largest health insurer, was eyeing a possible combination with one of its rivals.
Whichever way the deals are struck, it could have a significant impact on the health care industry, especially on the market in Missouri. The St. Louis region could see the number of health insurers reduce by half.
But some experts say that isn’t necessarily a bad thing. They argue that larger insurance companies would be able to drive harder bargains with hospitals and other medical providers, leading to lower costs for patients.
The merger rumors among health insurers are merely the latest sign of a dramatically changing health care landscape since the passage of the Affordable Care Act.
Hospital systems are growing larger through mergers, acquisitions and affiliations as they look to boost their footprints. Pharmaceutical companies are consolidating. States are increasingly looking to the private sector to provide health care to vulnerable populations. Clayton-based Centene Corp. has been at the forefront of this effort, and it too has been identified as a prime acquisition target by analysts.
Now the other large nationwide health insurers, also having had their business model radically overhauled by the federal health law, are looking to get in on the action.
“What’s fueling this consolidation is a more pressured operating environment because of (Affordable Care Act) mandates and greater competition,” Vishnu Lekraj, a Morningstar analyst who covers UnitedHealthcare.
Anthem, UnitedHealth, Aetna and Cigna combined for about three-quarters of Missouri’s entire comprehensive health insurance market last year, according to statistics from the state insurance department.
Consolidation among already dominant players in a market would normally draw raised eyebrows. But it’s a more nuanced story when it comes to health care.
“Less competition generally means higher prices, but in health care it’s more complicated,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation.
Health care has long belied traditional market forces and increased government regulation under the Affordable Care Act has made it even more complicated. Because of this, Levitt says consumers could see a benefit from the mergers.
He points to a government safeguard called the medical loss ratio as an example. The ratio forces insurance companies to spend a certain percentage of consumer premiums on medical claims. If a company doesn’t meet that threshold, it must refund their customers a certain amount.
Levitt also said that the insurance mergers could lead to more expansive provider networks, a recent consumer complaint.
“I think consumers care a lot more about choice of doctors and hospitals than they do insurers,” Levitt said.
Some analysts also say that larger insurers have the ability to influence lower pricing, making care cheaper for consumers.
“The bigger you are the better off you are as an insurer,” Morningstar’s Lekraj said. He characterized the potential deal as a “net benefit” for consumers.
Larger insurance companies can have more bargaining leverage with hospitals and other medical providers. If insurers can spend less on medical care through lower prices, then they may not need to charge consumers as high of premiums.
“The more power they have in dictating prices to hospitals … that should eventually lead to lower growth in premiums longer term,” Lekraj said.
Consumer advocates agreed when asked about the possible mergers.
“As consumers, we hope that insurance companies are going to negotiate for us and negotiate lower prices that lead to lower premiums and lower overall health care costs,” said Brian Colby, policy analyst at the Missouri Health Advocacy Alliance, a consumer group.
But others see the situation differently, pointing to general economic rules.
Leemore Dafny, health economist and professor at Northwestern’s Kellogg School of Management, asks, “If you have less competition, why would you decrease prices?”
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