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Who else loses after an ICE raid?

Aug 22, 2019

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Marketplace Morning Report

Aetna announces deal to buy Humana

Scott Tong Jul 3, 2015
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What can $37 billion get you these days? One health insurance company. Aetna’s purchase of Humana is the nation’s third-biggest insurer buying the fourth-biggest, in terms of revenue.

And there’s chatter of other mergers afoot. The need for scale is one driver of this, as insurers negotiate how much they pay to hospitals and doctors.

“In a local market, it’s a matter of who has the greater market power,” says Ana Gupte of the investment bank Leerink Partners. “So Humana combined with Aetna has a lot more market power in any market with a hospital or a physician group.”

Insurance firms have to be big and nimble at the same time. Gupte says the Affordable Care Act caps overhead and profitability for insurers. At the same time, competition is more fierce than ever for corporate customers.

“The old days where you had a broker who was cozy with a particular employer and could direct the traffic, that kind of a business-to-business market has eroded,” says J.B. Silvers, a former insurance CEO now teaching business at Case Western Reserve.

One growing section of the market is the part of Medicare run by private insurers. Baby boomers are aging into it, and Humana is a large player in that space. The question is, even if this tie-up makes sense for Aetna and Humana — as it does for doctors and hospitals to merge — do patients benefit? That answer may not be clear.

“Consolidation in both sectors has led to increases in provider prices and health insurance premiums,” says Leemore Dafny, health economist at Northwestern’s Kellogg School of Management.

Others argue large insurers negotiate discounted payments to medical providers, and pass the savings on to consumers.

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