Major Health Insurance Mergers – What Does it Mean for Americans?

Posted by on Jul 28, 2015 in News | 0 comments

2015 seems to be the year of major health insurance consolidation. Anthem has just formally announced that it has entered into an agreement to acquire Cigna for $48 billion, while Aetna has an agreement in process to obtain Humana for $37 billion. If both these deals come to fruition, it would combine four of the leading health insurance companies into just 2 separate entities, which begs the question, is the merging of major health insurance firms in the best interest of the public?

It is peculiar that the news of reducing the five largest health insurers in the US into only three carriers comes on the heels of the new Affordable Care Act (ACA) mandates that were intended to open the market to more competition. The philosophy behind the ACA is that exchanges will be more stable if multiple companies are driving prices. So why approve deals that will diminish competition?

There are potential benefits of fewer insurance carriers. For example, if Anthem and Aetna decide to work together, they have the potential to negotiate with doctors and command lower prices from providers. On the other hand, they could also combine efforts and drive up the cost of insurance.

In my opinion, the consolidation of the major insurance players will likely lead to an increase in insurance premiums and the cost of healthcare. That being said, there are constraints in place which limit the profit margins and enact a loss ratio (claims divided by premiums) of 85%. Simply put, insurance carrier’s profits are tied to the cost of healthcare since 85% of all premiums must be paid out to providers and the only way to reduce the cost of healthcare is to lower premiums. Neither the Anthem nor Aetna deals have been finalized and regulators are just beginning to evaluate the current situation, but it seems unlikely that any of these carriers involved would risk the millions at stake in the process unless they were confident the mergers would come to pass.

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