Does Aetna Exit Signal Deeper ACA Problems?

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San Diego Union-Tribune
The insurance giant Aetna will will stop offering Obamacare health plans in 11 of 15 states, citing $200 million in losses this year and more than $400 million since 2014. The announcement, made Monday night, was the latest blow to the Affordable Care Act, which had already suffered the departure of top-five insurers Humana and UnitedHealthcare and has seen double-digit premium increases for many of the carriers that will continue to sell through health exchanges such as Covered California next year. In general, carriers have said too many sick patients are the main reason they’re dropping out of exchanges or raising rates. With not enough young and healthy enrollees to balance out the claims ledgers, the three companies that are pulling out or down scaling said they have lost hundreds of millions of dollars.

So do these developments mark the beginning of the doomsday scenario for Obamacare? Before the law’s main insurance provision took effect in 2014, many experts predicted that guaranteeing coverage to all consumers regardless of their pre-existing medical conditions would eventually create “sick” insurance risk pools that could not cover their costs without large premium increases each year.

The experts disagree on whether the latest pullbacks and significant pricing hikes, floating in a sea of election-year politics, signal that the nation’s health insurance exchanges have reached a terrible tipping point or are simply seeking a new state of equilibrium.

Gary Claxton, director of the nonprofit research group Health Care Marketplace Project at Kaiser Family Foundation, takes a middle position. He said the currently available facts can be interpreted either way, and that means Obamacare’s upcoming open-enrollment period — its fourth annual — is critical. It will all come down to whether the number of enrollees in Obamacare plans continues to grow, he said. “We won’t know until the next open enrollment, are we still moving forward or are we stalled or moving backward?” Claxton said. ” If the market grows, then I think many insurers will find a way to be part of it… The next couple of months are a moment of truth.”

Just how bad the problem is depends on who you ask. UnitedHealthcare said in April that it expects to lose $650 million this year because the cost of its Obamacare policies has exceeded revenue generated from premiums. Then late Monday brought Aetna’s announcement of its deficits. While its book of business includes insurance plans sold outside of Obamacare exchanges as well, all plans on the individual market (not employer-based policies) have been affected by the Affordable Care Act’s edict to take all comers regardless of their health status.

This picture of unprofitability from some of the nation’s largest insurers contrasts with an announcement last week from the U.S. Centers for Medicare and Medicaid Services that said per-member claims were flat from 2014 to 2015 for exchange enrollees, compared with a 3 percent increase for the broader health insurance market.

The federal government gets its data from the Affordable Care Act’s reinsurance and risk adjustment programs, which have collected broad information on all claims in order to reimburse programs that experienced higher-than-average patient expenses. The reinsurance program will go away next year and many organizations, including Covered California, have said insurers are announcing double-digit premium increases for next year to compensate for this change. Neither the insurance companies nor CMS has released full data sets on Obamacare claims, making it difficult for analysts to reconcile these seemingly contrasting pictures about the financial state of health exchanges.

Brian Blase, a senior research fellow at the Mercatus Center, a conservative think tank located at George Mason University in Virginia, said he believes insurers’ reported losses and their decisions to largely leave the exchanges have been brewing since 2014, the first year exchange policies took full effect. A recent analysis of 174 health plans operating in 2014 showed that premiums would have had to be 24 percent higher than they were in 2014 to cover costs, but that the disparity was erased by the government’s reinsurance program, according to the Mercatus study.

When asked why the recent CMS study indicates a very different scenario, Blase was blunt. “I think they did some gymnastics on how they counted or discounted claims. It is inconsistent with everything else I’ve seen and, frankly, I think that their analysis is inaccurate,” Blase said. He said the current negative pattern will likely deepen, eventually leading to repeal or significant modification of the Affordable Care Act’s insurance regulations. “You’re going to have rising premiums and lower choice. I think the political pressure next year to make changes will be significant,” Blase said. But others such as Sara Collins, vice president for health care coverage and access at The Commonwealth Fund, a foundation that supports independent research on health care practice and policy, don’t see dire signs from the latest insurance developments. She noted that major carriers including Blue Cross, Blue Shield and Kaiser Permanente are not pulling out of exchanges. There is evidence, Collins added, that insurance risk pools tend to be healthier when they’re in larger states such as California. Long-term sustainability, especially where premiums are concerns, appears to be a function of size, which in turn lures multiple carriers who compete with each other for business. Collins said this means the estimated 1,000 U.S. counties with only one insurance carrier are likely to see more significant upward pressure on premiums in coming years, a situation that does, as Blase asserts, seem to suggest the federal government needing to step in. Ideas for intervention range from creating a “public option” similar to Medicare or special high-risk insurance pools to subsidize insurance to cover people with the most expensive medical needs.

Overall, though, Collins said the current information appears to indicate that Obamacare markets are maturing rather than dying. “It’s not surprising that we’re seeing some shake-up in the marketplace this year. There are going to be winners and losers like any competitive market you can think of. Some will compete and gain market share, others won’t,” she said. Additional information on the changes the Affordable Care Act has wrought in California will be forthcoming. The Kaiser Family Foundation is scheduled to release the fourth and final installment of its California health survey on Friday. The survey has tracked the effects of the law across the state since summer 2013. (c)2016 The San Diego Union-Tribune. Visit The San Diego Union-Tribune atwww.sandiegouniontribune.com.

DOJ Fights Mergers

by Dr. Merrill Matthews

Many health policy experts warned that the Affordable Care Act would lead to massive consolidation in the health care industry, including hospitals, physicians’ practices, and especially health insurers. Now the Justice Department is pushing back by opposing the mergers of four large health insurers—Aetna with Humana and Anthem with Cigna. The real question is whether the insurers will continue to sell in the exchanges if they aren’t allowed to merge?

The Obama administration says that the mergers would reduce competition. Attorney General Loretta Lynch explained, “If allowed to proceed, these mergers would fundamentally reshape the health insurance industry.” That’s rich, since nothing has reshaped the health insurance industry more than Obamacare—and by design.

But government antitrust litigation is almost always about politics rather than economics. And that’s why free market advocates tend to be skeptical of most government antitrust efforts; companies, not the government, are in the best position to judge whether a merger would be beneficial.

And politics is certainly at work in this instance. President Obama promised the country that his health care legislation would increase competition and lower health insurance premiums. Now that just the opposite is happening, his administration is trying to limit the fallout and appear to be fighting for the consumer. But blocking the mergers will likely hurt consumers and competition.

Health insures are fleeing the Obamacare exchanges because of financial losses. A recent McKinsey & Co. survey found that health insurers selling in the individual market—where individuals buy their own coverage, usually through Obamacare exchanges—lost $2.7 billion in 2014. Those loses only compounded in 2015. The Hill reports that Humana “is pulling out of Obamacare plans in all but a handful of states after a year of nearly $1 billion in losses.”

Aetna said it lost about $140 million on the individual market in 2015. The Texas Blues Cross parent company, which controls Blues plans in five states, lost a reported $2 billion—$720 million just in Texas.

Oscar, a start-up health insurer that was supposed to bring new thinking to the individual health insurance market lost $105 million on Obamacare exchanges in 2015—and that was in just two states, New York and New Jersey.

UnitedHealthcare, the largest health insurer, reported last January that it lost $720 million in 2015 selling individual health insurance on the Obamacare exchanges. And about $1 billion when 2014 and 2015 were combined. And 16 of the 23 nonprofit Obamacare co-ops—which were the left’s consolation price for not getting their “public option”—have gone under, with more collapses on the way.

The left has long wanted to “take the profits out of health care,” and Obamacare seems to be doing exactly that. Obama officials dismiss the health insurer losses, claiming that many of the insurers are still profitable. But that’s because health insurers often have several lines of business, some of which may be profitable even as they lose hundreds of millions of dollars selling in Obamacare exchanges. No responsible board of directors will let such losses continue indefinitely. Larry Levitt of the Kaiser Family Foundation has been quoted as saying, “Something has to give. Either insurers will drop out or insurers will raise premiums.” And that’s exactly what we’re seeing. Nationwide, there was a 12% decline in plans in 2016 as compared to 2015, and that includes a 40% decline in PPO plans. There will be even more exits in 2017. Prior to Obamacare there were 18 insurers offering individual coverage in Kansas. Today there are three. The Obama administration initially praised health insurance competition in Maricopa County, Arizona. This year there were eight plans available on the Obamacare exchange; next year there will only be four—unless Aetna drops out, too. And insurers that choose to remain are increasing premiums. Texas Blue Cross has requested an increase of up to 60% for its 2017 premiums, and Arizona Blue Cross requested a 65% increase.

We know Humana, without the merger, is pulling out. Aetna claimed for months it would remain in the Obamacare exchanges, but is now saying it may scale back. And Anthem announced recently that it will only expand into other exchanges if it’s Cigna merger goes through. In other words, the Obama administration’s efforts to keep four insurers from becoming two may mean that only one or none will continue selling on the Obamacare exchanges.

Expect to see even fewer insurers participating and higher premiums as financial losses increase, especially if the Obama administration continues its efforts to stop money-losing insurers from merging. Policyholders will likely be receiving the notice that their premiums are rising or policy is being canceled in September or October—just before the election.

Merrill Mathews is a resident scholar with he Institute for Policy Innovation at ipi.org.

Response to DOJ’s Move To Block Mergers

The Justice Dept. is suing to block two proposed mergers between major health insurance companies, saying the deals violate antitrust laws. The lawsuits argue that a $37 billion merger between Humana and Aetna would lead to higher health-insurance prices, reduced benefits, less innovation, and worse service for over a million Americans. The DOJ also says that the $54 billion acquisition of Cigna by Anthem would be the largest merger in the history of the health insurance industry. California insurance commissioner Dave Jones said, “I urged the DOJ to prevent these health insurance mergers, which would result in a highly concentrated, less competitive health insurance market doing irreparable harm to consumers and businesses. During the public hearings I convened, I questioned executives from Anthem, Cigna, Aetna and Humana. None of the companies were able to substantiate their claims of savings associated with the mergers. Not one company executive was willing to commit to pass along alleged cost savings to consumers through lower premiums. Bigger is not better when it comes to health insurance mergers. History has shown that health insurance mergers result in higher prices, fewer choices, and lower quality of care.”

Dr. Merrill Matthews of The Institute for Policy Innovation said, “The Obama administration is attempting to block the Aetna-Humana and Anthem-Cigna mergers because it wants more competition, but if compounding financial losses force these companies to drop out of the exchanges, there won’t be any competition. Two larger health insurers are better than none. Health insurance company mergers started shortly after the ACA passed in order to survive the new environment of high costs and government regulations…For example, Arizona’s Maricopa County was once praised as a center of robust competition with eight insurance companies competing in its ACA exchange. But in just a few years, that number will drop to only three insurers, two of which are Aetna and Cigna. If Washington stifles these same companies’ attempts to stay afloat in the exchanges, Maricopa County and other areas could see only a single insurer available in its marketplace—if any at all…If the Department of Justice’s stonewalling is successful, those insurers will likely join many others and pull out of the Obamacare exchanges, leaving even less competition and higher prices. And that will force the administration to devise even more excuses for why health care costs are exploding.”

Insurer Obamacare Losses Reach Billions Of Dollars After Two Years

Bruce Japsen ,

CONTRIBUTOR

I write about health care and policies from the president’s hometown

Opinions expressed by Forbes Contributors are their own.

After two years offering uninsured Americans subsidized products on public exchanges, health insurance companies have been hard-pressed to find financial success in this segment of the Affordable Care Act with losses reaching billions of dollars for the industry.

UnitedHealth Group UNH +0.77% lost more than $720 million on its public exchange business last year, and United is a small player in this market compared to Anthem ANTM +0.84%, which operates Blue Cross and Blue Shield plans in 14 states, and said money-losing Obamacare plans caused profits to fall 64% in the fourth quarterAetna AET +0.16%, which hopes to finalize its acquisition of Humana HUM -0.29% later this year, said last week individual coverage sold under the health law “remained unprofitable” last year.

The financial performance has come into view in the last two weeks following release of 2015 annual and fourth-quarter earnings.

A demonstrator in support of  the Affordable Care Act holds an “ACA is here to stay” sign outside the Supreme Court after justices ruled 6-3 to save Obamacare tax subsidies on June 25, 2015. Photographer: Andrew Harrer/Bloomberg

Other Blue Cross and Blue Shield plans, some nonprofits and others owned by policyholders, are also reporting hundreds of millions in losses on health plans they sell on public exchanges. For example, Blue Cross and Blue Shield of North Carolina has reported losses of more than $400 million through last year and Health Care Service Corp., which owns five Blue Cross plans including those in Illinois and Texas, lost more than $240 million in 2014 and remained unprofitable in its public exchange business last year. Health Care Service has yet to disclose 2015 financials for its nearly 2 million members in its individual business that includes Obamacare enrollment, a company spokesman said.

For insurers, the problem has largely been a major increase in medical expenses from these new patients, who were previously uninsured. From an actuarial standpoint, the health plans say they didn’t know what they would be getting and therefore needed more healthy people to buy premiums to cover the costs of the sick. So far, medical expenses are getting the upper hand. For example,Anthem’s fourth-quarter “benefit expense ratio” was 87% compared to 84.5% in the year-ago period.

But insurers, for the most part, see 2016 as a potential breakout year as they get a handle on pricing and narrow provider networks to better control costs.

Anthem CEO Joe Swedish, who has complained rivals have underpriced their products to get enrollment in the first two years, looks for the public exchange business to rebound following two years of pricing he’s described as “unsustainable.” Analysts say Anthem might even have stronger offerings following its acquisition of Cigna CI -0.04%, should that close later this year.

Medicare Advantage 2016 Spotlight

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The number of Medicare beneficiaries enrolled in Medicare Advantage has climbed steadily over the past decade; this trend in enrollment growth continues in 2016. The enrollment growth has occurred despite provisions under the ACA that reduce payments to plans. As of 2016, the payment reductions have been phased in fully in 78% of counties, accounting for 70% of beneficiaries and 68% of Medicare Advantage enrollees, according to a study by the Kaiser Family Foundation. The following are study highlights:

  • Medicare Advantage enrollment has increased in virtually all states over the past year. Almost one in three people on Medicare (31% or 17.6 million beneficiaries) is enrolled in a Medicare Advantage plan in 2016. The penetration rate exceeds 40% in five states.
  • 18% of enrollees are in a group plan. Employers and their retirees still favor local PPOs over HMOs.
  • Enrollment is still highly concentrated. If Aetna acquired Humana with no divestitures in 2016, the combined firm would account for 25% of Medicare Advantage enrollees nationwide. UnitedHealthcare and Humana account for 39% of enrollment in 2016.
  • Premiums were relatively constant from 2015 to 2016 ($37 a month in 2016 versus $38 a month in 2015), although premiums vary widely across states, counties, and plan types.
  • In 2016, the average enrollee had an out-of-pocket limit of $5,223, which is nearly $1,000 higher than in 2011.
  • 31% of the Medicare population is enrolled in a Medicare Advantage plan. Total Medicare Advantage enrollment grew 5%, from 2015 to 2016. This reflects the influence of seniors aging on to Medicare and beneficiaries shifting from traditional Medicare to Medicare Advantage.
  • 64% of Medicare Advantage enrollees are in HMOs; 23% are in local PPOs; 7% are in regional PPOs; 1% are in private fee-for-service plans; and 4% are in other types of plans including cost plans and Medicare medical savings accounts.
  • Enrollment in private fee-for-service plans has declined slowly since the Medicare Improvements for Patients & Providers Act (MIPPA) of 2008. Under the law, in most parts of the country, private fee-for-service plans must have a provider network. About 1% of Medicare Advantage enrollees are in these plans. 26% of enrollees in private fee-for-service plans are in counties in which private fee-for-service plans are exempt from network requirements.
  • Medicare Advantage enrollment in California grew 6% from 2015 to 2016.
  • 44% of beneficiaries in Los Angeles County, California are enrolled in Medicare Advantage plans compared to only 11% of beneficiaries in Santa Cruz County, California.
  • The average MA prescription drug enrollee pays a monthly premium of about $37, which is 1% less than in 2015. Actual premiums are $28 a month for HMOs, $63 a month for local PPOs, and $76 a month for private fee-for-service plans. Average Medicare Advantage premiums for HMOs and local PPOs have decreased since the ACA was enacted while average premiums have increased for regional PPOs and private fee-for-service plans.
  • In 2016, 81% of Medicare beneficiaries had a choice of at least one zero premium MA prescription drug plan. From 2015 to 2016, the share of enrollees in zero premium MA prescription drug benefits remained relatively unchanged (48% in 2015 versus 49% in 2016). Fifty-nine percent of HMO enrollees are in zero premium plans; 38% are in regional PPOs; and 22% are in local PPOs. No zero premium private fee-for-service plans plans were offered in 2015 or 2016.
  • The average out-of-pocket limit for a MA prescription drug enrollee is $5,223, up from $5,041 in 2015 and $4,313 in 2011. The share of enrollees in plans with limits above $5,000 has greatly increased across all plan types. Fifty-two percent of enrollees are in plans with limits above $5,000 in 2016 compared to 46% in 2015. Thirty-seven percent of enrollees in 2016 are in plans with limits at the $6,700 maximum, compared to 32% in 2015 and 17% in 2011. Ninety-nine percent of regional PPO enrollees and 62% of local PPO enrollees are in plans with limits above $5,000 in 2016. In comparison, 45% of HMO enrollees are in plans with limits above $5,000 in 2016.
  • The standard Medicare Part D plan has a $360 drug deductible and 25% coinsurance up to an initial coverage limit of $3,310. That is followed by a coverage gap (the doughnut hole) in which beneficiaries pay a larger share until their total out-of-pocket Part D spending reaches $4,850. After exceeding this catastrophic threshold, beneficiaries pay 5% of the cost of drugs.
  • 95% of Kaiser Permanente’s enrollees are in HMOs. In contrast, enrollment in UnitedHealthcare and Humana plans is mostly in HMOs, but includes significant shares in local and regional PPOs. Humana’s distribution continues the shift from earlier years when a much larger share of Humana’s enrollees was in private fee-for-service plans plans. Enrollment in BCBS plans is split between HMOs (46%) and local PPOs (41%), with the remainder in regional PPOs and other plan types including private fee-for-service plans plans.
  • Kaiser Permanente’s presence is more geographically focused than other major national employers, with a heavy concentration in California, Colorado, the District of Columbia and Maryland.
  • Medicare Advantage enrollment could become more concentrated if Aetna’s acquisition of Humana and Anthem’s acquisition of Cigna are approved, particularly if few divestitures are required. If no divestitures are required in Aetna’s acquisition of Humana, the combined company would account for 25% of Medicare Advantage enrollment nationwide. UnitedHealthcare accounts for 21% of enrollment this year.
  • The Anthem’s acquisition of Cigna would have a less visible affect on the national Medicare Advantage market. Nationwide, Anthem accounts for 3% of Medicare Advantage enrollment and Cigna accounts for another 3%.
  • For many years, CMS has posted quality ratings for Medicare Advantage plans. In 2016, 68% of plans had four or more stars. In focus groups, seniors have said that they don’t use the star ratings to select a plan. Nonetheless, the star ratings may be correlated with factors that seniors do use to select their plan, including provider networks, and plan benefits and costs, and thus may be correlated with enrollment.
  • The Congressional Budget Office projects that about 41% of Medicare beneficiaries will be enrolled in Medicare Advantage in 2026. This growth may prompt some to question what it will mean if the preponderance of beneficiaries are in Medicare Advantage plans.

Groups Says that Divestitures Don’t Keep Medicare Advantage Competitive

Requiring companies to divest does not maintain competition amid health insurance mergers, according to an issue brief by the Center for American Progress. (Competition authorities frequently require merging parties to divest a number of brands or operations in order to clear a proposed merger.) The Center says that divestitures don’t restore competition with Medicare Advantage plans. Also, seniors pay higher premiums for divested plans. By 2015, acquiring partners exited more than half of the affected counties. Only two of the 15 divested plans are offered, and premiums increased an average of 44% for more than half of the divested plans. Researchers at the Center say that divestitures in the proposed Aetna-Humana merger won’t be successful in maintaining competition and protecting seniors. In fact, the proposed Aetna-Humana merger would greatly reduce market competition for Medicare Advantage beneficiaries. In markets where Medicare Advantage beneficiaries have a choice of insurers, Aetna’s average annual premiums were lowered by as much as $302 and Humana’s annual premiums were lowered by as much as $43. Under the merger, premiums could increase beyond these amounts because of the greater market power of the combined company.

Aetna and MemorialCare Announce New ACA

Aetna and MemorialCare Health System announced accountable care collaboration. The Aetna Whole Health product in Orange County and select portions of Los Angeles County will offer employers a health care model designed to improve quality, efficiency and the patient experience. The health care savings will be specific to each employer, with the potential to save up to 15% over comparable broad network Aetna products. The new commercial health care product, Aetna Whole Health – MemorialCare, will provide highly coordinated care from approximately 2,000 doctors, which includes more than 500 primary care providers, along with seven award-winning hospitals and over 40 urgent care centers.The plans will be available to self-insured businesses in Orange County and portions of Los Angeles County, which includes Long Beach and the South Bay, beginning Sept. 1 for an effective date of November 1st. The plans are anticipated to be available for fully insured customers in early 2016.

Judge Tells Aetna to Pay for Cancer Treatment

Judge Tells Aetna to Pay for Cancer Treatment
A Texas judge granted a restraining order preventing Aetna from denying cancer treatment to a man with advanced prostate cancer. Bobby Allen Bean’s doctors recommended proton radiation therapy. His doctors said that the only other options to treat the cancer are too risky because he has insulin-dependent Type 2 diabetes.

Aetna refused to cover the treatment, calling it experimental. However, the patient’s medical facility has been using proton radiation therapy for nearly 10 years. “This is not some unknown experimental treatment. It works. And my client should be given the opportunity to have the treatment to save his life,” said his attorney, Robert Hilliard of Hilliard Munoz Gonzales LLP

Carriers Face Tough Post-ACA Market

Carriers Face Tough Post-ACA Market
Players in the U.S. health insurance industry are expected to suffer from narrowed operating margins for the next few years due to the Affordable Care Act (ACA). The operating environment has become so tough that some health plans, especially smaller ones, may be forced to exit the market. Players are facing high regulatory compliance costs, increased taxes and fees, pricing pressure, rising medical costs, stiff competition and general marketplace uncertainty, according to an analysis by Zachs Equity Research. But the ACA is hardly the unmitigated disaster that some industry players make it out to be.

Before the ACA, insurance companies had an upper hand in choosing whom to provide coverage. But now, consumers’ increased purchasing power and access to information is one of the major threats to insurers. Before the ACA, big insurers that dominated large markets rarely gave consumers even basic information, such as the performance of health insurance policies, procedures to claim, the size of the provider network, and cancellation processes. Now customers demand transparency, value, and convenience, leaving insurers grappling for ways to satisfy these needs. The new mission will not be easy to execute.

The industry has witnessed a shift in insurers’ business mix from commercial insurance to government (Medicare, Medicaid and State-subsidized marketplace or exchange) and from fully insured risk policies to administrative services only (ASO) products. This shift in business has hurt profitability. Premiums for Medicare, Medicaid and state-subsidized policies tend to be higher due to the serious health issues for many enrollees, but they carry smaller profit margins compared to commercial insurance. ASO policies only pay administrative charges to the insurers and are far less profitable than full risk covered policies. A massive shift to ASO products is visible since they offer employers the best way to cut health insurance costs. Aggregate industry margins will decline modestly as more industry revenue comes from lower margin government and ASO business.

ACA fees and taxes remain a big issue for the insurers in 2015 and are expected to eat into insurers’ bottom lines, such as an annual health insurance industry fee and an exchange user fee, or Cadillac fee. UnitedHealth Inc. expects its share of the managed care industry’s non-deductible ACA insurer tax to reach $1.8 billion in 2015 from $1.3 billion in 2014. This is on top of $320 million in reinsurance fees. The company expects these two headwinds to cost $0.15 per share in 2015. In 2014, UnitedHealth’s margins fell 50 basis points due to Medicare Advantage cuts, ACA costs, mix (more government business), and less favorable development of medical costs. These trends are likely to remain throughout 2015. While theses factors might affect the players in the industry deeply, Zach does not recommend selling any stock under its coverage, namely UnitedHealth, Anthem, Aetna, Humana, and Health Net.

UnitedHealth and Anthem Look to Purchase Smaller Carriers

 

UnitedHealth and Anthem Look to Purchase Smaller Carriers


TheStreet.com reports that UnitedHealth, Anthem, Aetna, Humana, and Cigna are involved in a buzz of merger and acquisition activity, as the health insurance industry is responding to the aftershocks of the Affordable Care Act.

Fitch Ratings reports that a combination of any of the five largest U.S. health insurers could accelerate further merger and acquisition activity in the managed care sector. Just one mega M&A deal could lead to similar responses by competing firms seeking to shore up competitive disadvantages in scale and product lines. Fitch sees the M&A potential in the health insurance sector as a direct response to anticipated market conditions in a post-Affordable Care Act (ACA) world. Rumors of health insurance M&A activity among the five largest publicly traded health insurers in the U.S. have accelerated in recent weeks.

Fitch says that the ACA, would add to health insurers’ membership volumes, but reduce member margins. This margin pressure would be exacerbated by the government’s challenging fiscal condition, employers’ on-going desire to reduce health care costs, and a heightened need to invest heavily in technology.

As a result, Fitch believes that size and scale are quite important to health insurers’ competitive positions and financial results. In addition, the importance of product line (i.e. individual, group, Medicare, Medicaid) diversification will increase in response to the government’s increasing role in the market, the aging U.S. population and employers’ desires to reduce health care costs

Last Updated 11/18/2020

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