Multiple news sources report that Indianapolis-based health insurer Anthem is in final negotiations to acquire competitor Cigna of Bloomfield, Connecticut. The deal would value Cigna at approximately $48 billion, or $188 per share, according to unnamed sources.
Aetna announced earlier in July that it would buy rival Humana for $34.1 billion in cash. Both deals would face extensive scrutiny by federal antitrust regulators at the Justice Department and Federal Trade Commission. Many analysts consider it unlikely that both deals would be approved, because they would reduce competition for health insurance customers and concentrate more pricing power in insurers’ hands.
The wave of proposed mega-mergers comes as insurance companies face financial pressures under the Affordable Care Act, which has been reaffirmed in recent Supreme Court decisions that turned back major legal challenges to the law.
If the mergers succeed, the number of major national health insurers would be reduced from five to three: Anthem, Aetna and UnitedHealth Group.
Management professor J.B. Silvers at Case Western Reserve University says there are compelling benefits to the bottom line for insurance companies to consolidate under Obamacare.
“The fact there are a lot more people buying health insurance because of Obamacare makes it a more lucrative market than it’s ever been.”
Healthcare economist Vivian Ho at Rice University says insurers are being driven to merge by another key constituency in the rapidly changing healthcare industry: healthcare providers. She says Obamacare has driven hospitals to merge, doctor’s groups to get bigger and hospitals to acquire doctor’s groups. That’s increased the providers’ power to negotiate favorable deals with insurers. She says insurers are trying to consolidate to even the playing field.
Ho points out that even if the biggest insurers succeed in merging and cutting costs, they can claim some of the financial benefit won’t go to their bottom line, because of complicated rules on profit-taking under Obamacare. “I think the insurance companies are going to say, ‘We have to pay 85 percent of our premiums on health care expenditures, so that means cost savings will be passed on to the consumer,’ ” says Ho.
Ho says insurers have figured out ways to get around these Obamacare limits, for instance, by categorizing more client services as “health care expenditures.”
Antitrust regulators, meanwhile, will scrutinize these proposed deals to determine whether the merged insurers are likely to end up with too little competition — nationwide, or in specific geographic and medical markets, such as Medicare — or whether the merged insurers will gain too much power to set terms and prices for consumers, hospitals, doctors and employers.
If you’re a member of your local public radio station, we thank you — because your support helps those stations keep programs like Marketplace on the air. But for Marketplace to continue to grow, we need additional investment from those who care most about what we do: superfans like you.
Your donation — as little as $5 — helps us create more content that matters to you and your community, and to reach more people where they are – whether that’s radio, podcasts or online.
When you contribute directly to Marketplace, you become a partner in that mission: someone who understands that when we all get smarter, everybody wins.