The nation’s five largest health insurance companies are circling each other like hungry lions closing in on prey.
On Friday, Aetna said it would acquire its smaller rival Humana to create a company with combined revenues of $115 billion this year. Anthem is stalking Cigna. UnitedHealth Group, now the largest of the five, is looking at its options. At the end of the maneuverings, three national behemoths are likely to emerge.
There is also a scramble among the smaller insurers. On Thursday, Centene, which specializes in offering Medicaid coverage, said it planned to buy Health Net, a for-profit insurer headquartered in Los Angeles.
As insurers grow larger, will consumers benefit from the companies’ ability to bargain with hospitals and doctors for lower prices? Will diminishing competition translate to fewer choices of plans? And what effect will mergers have on innovation in health care?
The answers depend largely on how successfully the other insurers, particularly those that were created or attracted by the Affordable Care Act, can compete with these much larger companies.
“All politics are local,” the saying goes, and it is similarly so with insurance companies.
The big (and getting bigger) for-profit companies – that make most of their revenue from employer and Medicare and Medicaid plans – still face significant competition from the regional or state-based nonprofit Blue Cross and Blue Shield plans, particularly in the market for employer-based coverage.
“What people miss is the regional strength of regional Blue Cross plans,” said Paul H. Keckley, managing director for the Navigant Center for Healthcare Research and Policy Analysis.
Blue Cross Blue Shield plans, including the for-profit versions owned by Anthem in 14 states, traditionally have dominated the markets for individuals and employers. In more than 30 states, a nonprofit Blue Cross sells the most policies to large employers, with almost a dozen capturing three-quarters of the market, according to 2013 data from the Kaiser Family Foundation, the latest information it has compiled.
“They have national share, but they do not have big share in a lot of places,” said Gary Claxton, an executive with the Kaiser Family Foundation.
The picture is different outside of the employer market, however. In the business of selling private Medicare plans, which the insurers offer as an alternative to the traditional Medicare program, the five companies – particularly UnitedHealth and Humana – command about half the market, according to Kaiser data from 2015.
The big for-profits are frequently the dominant players in an individual state, and the proposed combination of Aetna and Humana will create a larger force in that market.
One primary reason for the latest merger mania is the companies’ need to have more clout in more local markets so they can negotiate better deals with local hospitals and doctors. Across the bargaining table are increasingly powerful local health systems that have been consolidating to become more efficient and to gain more say about the price of care and the networks they will join.
“What it all comes down to is the relative market share between plans and the hospitals,” said Len Nichols, a health economist at George Mason University.
But consumer advocates are skeptical that more consolidation is the answer.
“In most markets, insurers are pretty consolidated already,” said Claire McAndrew, who follows the private insurance market for Families USA, a consumer advocacy group in Washington. “I am not sure if further consolidation is going to have a further impact.”
The challenge for the nonprofit Blue Cross plans, meanwhile, is whether they will be able to offer a competitive alternative to a combined Aetna-Humana or Anthem-Cigna.
The large for-profits also face more competition from some of the market’s newest entrants, which have benefited under the Affordable Care Act. The law created a new species of insurer, the consumer-oriented co-op plans. But the introduction of statewide online marketplaces also helped attract new players, including large health systems such as Ascension, the nonprofit Catholic system, and North Shore-LIJ in New York.
The well-regarded health systems should be able to capitalize on their standing in the local community, said Ceci Connolly, managing director for PwC’s Health Research Institute, as compared with “the national Goliath coming in from the outside.”
And just as the state marketplaces have benefited some of the newest competitors, allowing them to grab market share by offering the lowest-price plans, the advent of similar marketplaces offered by employers could bolster competition. Known as private exchanges, these would be similar in that employers could present their workers with a broad range of offerings through an online exchange that would include smaller or regional insurers.
“A small plan still has the ability to compete on price and network,” said Larry Boress, chief executive of the Midwest Business Group on Health. He pointed to Land of Lincoln Health, a co-op in Illinois that attracted more than 50,000 customers through the state marketplace after significantly dropping its prices.
Competing in this environment “is not for the faint of heart,” said Sabrina Corlette, a health policy expert at Georgetown University. Many of the smaller outfits have “no cushion, no margin for error,” making it harder to survive, she said.
The urge to merge also may signal less willingness by the big insurers to create new plans and to work with hospitals and doctors on novel ways of delivering care.
“This is just going to undercut any motivation for innovation,” said Rob Fuller, a former hospital executive who is now a lawyer at Nelson Hardiman in Los Angeles. He predicts that the big insurers will use their newly found clout to return to the time when all that mattered was trying to obtain lower prices rather than rethinking their relationships with the providers. “It is going to be back to blunt force, take it or leave it,” he said.
Date: July 6, 2015