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Anne Law

Top Five Health Insurers Spin Complex Web of Merger Negotiations

by Anne Law | Dun & Bradstreet Editor

July 2, 2015 | 1 Comment »

Medical-business-caduceus_shutterstock_180406142_1100pxThe top US health plan providers are in a megamerger negotiations tussle that could create major shifts in the health insurance marketplace. Spurred by cost savings and growth opportunities, market leaders UnitedHealth, Anthem, Aetna, Humana, and Cigna are courting each other in a complicated dance:

  • Meanwhile, Anthem has made multiple offers to Cigna. The two companies are in talks to merge, but have not been able to reach an agreement on terms, according to recent reports.
  • The #1 market player, UnitedHealth, has also entered the fray. UnitedHealth is reportedly considering tie-ups with both Aetna and Cigna to cement its position in the face of merging rivals.

If you think the M&A frenzy has something to do with the Affordable Care Act (ACA) and the changes health reform has exacted upon the industry, you are correct. As pressure on insurers to reduce health expenses intensifies, the companies are jockeying for the best competitive position.

Any of the above tie-ups would change the scope of the insurance market both geographically and by customer segment, combining various players’ market shares in state-based independent plan exchanges, Medicare/Medicaid contracts, and group health plan accounts.

For instance, Humana has an attractive Medicare business that would help diversify the operations of an acquirer. A tie-up between Anthem and Cigna would combine Anthem’s strengths in individual and small-to-large employer group plans with Cigna’s position in self-insured commercial and international plans.

In addition to altering market share, a deal would help companies gain economies of scale. Trimming administrative costs and improving operational efficiencies will work towards ACA requirements that insurers spend a certain percentage of premiums on health care.

But the key incentive for insurers is increased negotiating power with health providers.
As health reform initiatives press for the transition to value-based payment systems, insurers are experimenting with tying reimbursement to quality of care. Hospitals and physicians may find such arrangements more attractive when plans cover a large share of patients.

Competition, consumer choice, medical costs, and quality of care will all undoubtedly be impacted by consolidation among the health insurance industry’s top players. The immediate effect of insurer megamergers on consumers and providers is not so clear, however. Industry analysts believe that such megamerger tie-ups could create near-term expense increases for corporate and individual plan customers due to a reduction in competitive options. However, long-term savings are possible as insurers conduct more efficient pricing negotiations with physicians.

The Supreme Court’s confirmation of ACA subsidies clears up any merger roadblocks that might have arisen from the loss of subsidized health exchange customers, though there are likely to be antitrust challenges.

Anne Law has been a member of the D&B editorial department for more than a decade, providing content for the Hoover’s and First Research products. She currently covers the health care and insurance industries for First Research. For industry news, follow Anne on Twitter.

The Supreme Court’s recent ruling upholding federal subsidies is expected to spur M&A activity in other healthcare-related sectors as well: namely hospitals and healthcare REITs.

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