Deconstructing health insurance merger fever: 3 major issues
These days, it's merger mania in the health insurance industry.
On Friday, Aetna shook the insurance world when it announced a $37 billion deal to buy Humana, FierceHealthPayer reported. Anthem and Cigna have been embroiled in sometimes-contentious talks about a possible Anthem takeover of its fellow insurer, and UnitedHealth Group, the final member of the "Big Five," also still may enter the merger fray.
Here's some of the latest developments and biggest issues surrounding the companies' consolidation:
The merger between Aetna and Humana will have to pass regulatory muster before it can be consummated. It's unclear how much either company actually has to worry about Department of Justice (DOJ) scrutiny, given that the 2016 election may change the nature of the department's mandate from the new faces in power, 247WallSt points out.
For his part, Aetna CEO Mark Bertolini has said "we believe that given the legal advice we have ... that this is a very manageable transaction," according to Reuters. Bertolini also said he hoped that by making the first big merger move, Aetna and Humana could face less regulatory resistance.
And yet the American Hospital Association told Reuters in an emailed statement that it "will call upon the DOJ and Congress to exercise a significant level of scrutiny" regarding any potential consolidation. On Tuesday, Aetna and Humana also set termination fees that they will have to pay in case the deal falls through--Aetna would pay $1.69 billion and Humana would shell out $1.31 billion, according to another Reuters report.
Concerns about consumers
Will the likely consolidation of the major health insurers result in higher premiums? The reports appear mixed. Deals that result in less bargaining power on the part of providers could actually be good news for consumers given that payers could help hold down healthcare costs, MarketWatch reports.
Or the mergers may have little effect at all, Claire McAndrew, of consumer advocacy group Families USA, told the New York Times. "In most markets, insurers are pretty consolidated already," she said. "I'm not sure if further consolidation is going to have a further impact."
Some see consolidation in a far more negative light, however--including Senate Majority Leader Mitch McConnell, (R-KY), who issued a statement calling the mergers "the inevitable result of Obamacare's push toward consolidation as doctors, hospitals and insurers merge in response to an ever-growing government."
Implications for insurers
An Aetna-Humana deal is likely to encourage Anthem and Cigna to resume talks as their consolidation partners have narrowed. At the same time, UnitedHealth could pounce on Aetna, which it has been rumored to be eyeing as an acquisition target, if Aetna's deal with Humana falls through, FierceHealthPayer has reported.
If the Aetna-Humana deal continues as planned, however, the new combined company could choose to create their own standalone pharmacy benefit manager in 2019, after Aetna's contract with CVS Health expires, according to FierceHealthPayer.
The deal will also significantly strengthen Aetna's Medicare Advantage (MA) membership, a lucrative commodity thanks in part to an aging population that promises to swell overall Medicaid enrollment to 30 million by 2025. Indeed, "Humana brings to Aetna a tremendous asset in terms of its national MA presence and expertise," Thomas A. Carroll, managing director of Stifel Nicolaus & Co., told InsuranceNewsNet.
To learn more:
- read the 24/7WallSt report
- here's the first Reuters article
- read the second Reuters article
- check out the MarketWatch piece
- read McConnell's statement
- here's the InsuranceNewsNet article
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UPDATED: Anthem tries to acquire Cigna; UnitedHealth makes bid for Aetna