Last month, the big five national health insurance companies announced plans to consolidate into just three players: Aetna will take over Humana while Anthem will acquire Cigna, leaving giant UnitedHealthcare alone as the third. The combined Anthem-Cigna entity will have more than 50 million members and over $100 billion in revenue; team Aetna-Humana will also bring in over $100 billion in revenue from more than 33 million members.
Although the acquisitions will not close until next year and government regulators will take a close look to avoid antitrust concerns, observers are going with the assumption that the national insurance landscape is about to become a game of three titans.
How will this change impact insurers, providers and patients? The answer to that question is hard to foresee, but there is little doubt that the change will have implications for the competitiveness of regional insurers, the bargaining power of hospitals, and the wallets of patients everywhere.
Researchers who study health insurance markets note that insurer consolidation usually lowers the payments that hospitals and doctors receive for providing care – since the market becomes more favorable for insurers when there are fewer of them – but does not pass along those savings to patients. For example, when Aetna bought up Prudential’s health insurance division in 1999, reimbursement payments to healthcare providers decreased 3 percent but the insurance premiums that members paid increased 7 percent.
That result was described by researchers in 2009, but since then the health insurance industry has been turned on its head by the Affordable Care Act. Think of all the new regulations with which insurance companies have to contend: guaranteed coverage of people regardless of pre-existing conditions, less ability to charge people higher premiums based on their demographic or health characteristics, and a new wave of Healthcare.gov enrollees with unpredictable health needs and limited financial resources to afford higher deductibles and co-payments.
Few people have shed tears on behalf of health insurers, though, and by most indications the industry’s overall performance and profitability remains high. But these ground-shifting changes beneath the feet of insurance giants, at a time when hospitals are merging with each other and buying up physician practices with impressive speed, have motivated the consolidation we are seeing now. Insurance companies are banding together to take on what they perceive as a threat to their collective survival.
You might be hearing sweeping generalizations that healthcare will become more expensive across the nation because of these big deals, but such statements miss the mark. Consistent with the adage that “healthcare is local”, there are unique health insurance market landscapes in each major region across the nation. The array of factors that determine, for each part of the country, whether insurance premiums go up or down, and whether provider reimbursements go up or down, makes it hard to predict what will happen.
In some parts of the country, where national insurers have significant market share, choice will be limited and prices might increase – or decrease – significantly. In other parts of the country, where the big insurers do not have a strong presence, little will change due to the acquisitions. The best bet for all consumers is to expect some change and to carefully evaluate their options when new plans become available.
These big acquisitions affect not only individual and employer-based insurance markets, but also the private version of Medicare, known as Medicare Advantage, which covers 17 million seniors. Last month, the Kaiser Family Foundation published a report detailing the share of the Medicare Advantage population that each large insurer has. The amount of concentration in some states is surprising: Aetna-Humana would cover more than half of enrollees in 10 states and two-thirds of beneficiaries in five states. Not far behind in the race, UnitedHealthcare covers more than half of beneficiaries in four states and more than two-thirds of beneficiaries in two states.
This consolidated market power is important because choice and competition are the reasons why seniors sign up for Medicare Advantage plans in the first place. When four of the largest players become two, each holds more bargaining clout relative to the remaining competitors in the market. Consider this statement from Dave Jones, Insurance Commissioner of California, immediately following the announcement of the Anthem-Cigna deal:
“California’s health insurance market already suffers from consolidation, with the four largest health insurers in the individual market controlling more than 85 percent of the market. Further consolidation will result in even less competition among health insurers and will leave consumers and employers with fewer choices and the potential for greater premium increases. Studies of prior mergers of health insurers found that health insurance prices increased as a result of mergers. […] There is no requirement that any savings from these mergers be passed along to consumers or employers.
How might the regional Blue Cross Blue Shield insurers and the local community health plans adapt to compete with their suddenly consolidated rivals? Well, even as the landscape becomes realigned there are some positive developments for smaller entities. The recent growth of online insurance marketplaces has given regional and local plans an edge: they can now compete on a level playing field with national insurers for both employer-sponsored and individually insured consumers. In these new online marketplaces, plans are displayed in a common format to enable comparison shopping and transparency.
In the near future, it might not be a matter of which insurance companies have signed up with the corporate HR departments: instead, firms will give defined amounts of money to their employees for the purpose of purchasing health insurance – either from a diverse private marketplace or a public marketplace established under the Affordable Care Act. People will be more empowered to shop around for coverage that fits their needs and budget. In many markets, that might be the regional or local plan that has hustled to compete on price and quality. Consider the success of Maine Community Health Options, a consumer-led health plan that has grown to serve 71,000 members with a focus on customer service and direct negotiation with providers.
There are a few things about the coming years in health insurance that we know for sure. Prices for healthcare services will continue their upward march, market power will increase for insurers in most areas, and people will continue to become more empowered to select and switch between their health plans – while becoming more exposed to high deductibles and co-payments. The rest remains to be seen, and these developments will have enormous importance for everyone who delivers, finances, supports, and – most importantly – receives healthcare in this country.
NOTE: The views expressed here are those of the authors and do not necessarily represent or reflect the views of Healthcare, Inc. and HealthCare.com