Insurer Consolidation: “Megadeals” on the Horizon, Pose Major Implications for Premiums and Fees for
June 19, 2015 | FAH Hospital Policy Blog Team
Category: General, Health Care Delivery, Realignment
A Wall Street Journal article out this week assesses several major, multi-billion dollar mergers being pursued among insurance company giants and the impact of a changing paradigm of benefit plans on consumers. The story highlights the wave of major deals between the five largest insurance companies in the U.S.: Cigna, Humana, Anthem, Aetna and United, and outlines the motives for this latest set of mergers or “tie-ups.”
The article explains:
“Analysts expect tie-ups to reduce the field of five big publicly traded insurers to just three players. The final roster’s strengths and geographic sweep could look very different, depending on how the courtships end—and assuming regulators allow any deals the companies manage to strike.
Consumers might be left with fewer choices in some places, and hospitals and doctors could face tough negotiations with powerful health plans over their pay."
“For employers, any wave of mergers could potentially result in higher premiums or fees, at least in the short term, several experts said. Many companies put contracts out for bid by health insurers every few years.
‘If there are fewer players, there are fewer options to look at,’ said Steve Wojcik, vice president of public policy for the National Business Group on Health. That could result in employers getting bids from insurers that feature higher prices and 'fewer bells and whistles,' he said.”
Insurer consolidation is a longstanding trend, the first wave of which occurred in the 1990s. The result of these consolidations have been to drive market power for insurers sky-high, and a national scene where just 1 or 2 insurers control 50% or more of the market in 47 states.
This week’s piece from the Journal underscores the paradigm shift happening in benefit plan design across the health care market, which shifts greater risk onto consumers and employers who provide coverage. Consumers now face growing premiums, higher out-of-pocket costs and higher deductibles—all of which leads to higher personal health care spending where individuals feel the financial pinch. These proposed tie-ins among the largest insurers in the country will only serve to exacerbate this situation, placing greater risk and financial responsibility and less choice on the health insurance enrollees.
One expert explains who wins – insurers – and who loses – consumers – from this latest round of consolidation and the loss of competition that results. “’Usually, fewer competitors means prices will be less advantageous for consumers,” said Gary Claxton, an insurance expert at the Kaiser Family Foundation. “It probably means they’re going to be in a better position to maintain their margins,” he said.”
Experts are right to be wary of deals like these, as we have already seen the results of growing insurer consolidation wreaking havoc on out-of-pocket costs.