The Carrier Consolidation Craze

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By Ryan Glushkoff
So far in our look at trends that will impact employee benefits in 2017, we’ve examined the market on a macro and micro level, and pondered future of the ACA. Now is time to address carrier consolidation. Four of the five largest insurance carriers who provide products for the employee benefits market are merging. Despite being announced mid-2016, the deals have still yet to be settled because the federal government is suing to stop the mergers on anti-competitive grounds.

The first merger is between Aetna and Humana, who collectively serve 37 million people and have $114 billion in revenue. Not long ago, I would have said that an Aetna and Humana combination seems more likely to go through because Aetna has a strong nationwide employer-focused medical business and Humana’s strength is in Medicare Advantage. They have some similar markets, which means they may have to divest some businesses, but nothing so significant that it would have prevented the combination.

However, a federal judge recently ruled that the merger should not be allowed to proceed on antitrust grounds. The Department of Justice had sued to stop the deal, which is why it ended up in federal court in the first place.

Today, this adds more fog to an already foggy 2017 forecast. Aetna and Humana were merging because insurers believed they needed to be bigger to function in an ACA world. But since the ACA is most likely going away and we don’t know what it will be replaced with, the future is uncertain. What’s even more interesting is that President Trump has been very pro-business, so we’ll see if Aetna and Humana make efforts to see if the new Trump Administration are open to a compromise.

The second merger is between Anthem and Cigna, who collectively serve 53 million people and have a combined 2015 revenue of more than $116 billion. They represent the second and fourth largest medical insurance providers in the U.S. and are proposing a $54 billion merger. Anthem has strength in the small group market, whereas Cigna is strong in the mid-market and national account segments.

The interesting twist facing Anthem/Cigna is not so much a regulatory issue, but more related to how Anthem (which is owned by Wellpoint) will interact with the Blue Cross Blue Shield plans in markets where Anthem isn’t. Since Anthem depends on these partners to handle larger multi-state employers, there may be competition with Cigna when it becomes part of Anthem. In other words, the merger will test the relationship between Anthem and the Blue Cross Blue Shield Association.

If these two deals go through, the top five carriers will shrink to three. And if they don’t go through, other small ones will and the consolidation will continue. In terms of impact, these are some of the questions I have:

Will medical premiums go up or down, and at what rate?
Less competition usually means prices go up. So if you’re a broker or employer, be prepared to switch up your carriers to those with more advantageous pricing options.

Will consumers have a better experience in dealing with a bigger entity?
That may sound good on a PowerPoint slide, but it’s hard to put into practice. I am mainly speaking from my own personal experience working in client-facing service teams. Have you ever tried to call certain cable companies that begin with the letter “C”?

Will consumers have more choice in terms of providers?
I think this is likely since providers will want to deal with the biggest carriers out there. However, it could trigger a merger frenzy amongst providers too so that they have the scale they need to effectively negotiate with larger carriers.

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