Reactions to Anthem/Cigna Merger

Anthem and Cigna have entered into a definitive agreement whereby Anthem will acquire all outstanding shares of Cigna in a cash and stock transaction. The Anthem board of directors will be expanded to 14 members. David Cordani and four independent directors from Cigna’s current board of directors will join the nine

Joseph Swedish, president and CEO of Anthem said, “The Cigna team has built a set of capabilities that greatly complement our own offerings and the combined company will have a competitive presence across commercial, government, international and specialty segments. “The complementary nature of our businesses will allow us to leverage the deep global health care knowledge, local market talent, and expertise of both organizations to ensure that consumers have access to affordable and personalized solutions across diverse life and health stages and position us for sustained success,” said David M. Cordani, president and CEO of Cigna. The transaction is expected to close in the second half of 2016, pending state regulatory approvals.  Anthem is confident in its ability to obtain all necessary regulatory and other approvals.

Insurance Commissioner Dave Jones said, “California’s health insurance market already suffers from consolidation with the four largest health insurers in the individual market controlling more than 85% of the market. Further consolidation will result in even less competition among health insurers and will leave consumers and employers with fewer choices and the potential for greater premium increases. Studies of prior mergers of health insurers found that health insurance prices increased as a result of mergers. “Health insurers are enjoying record share values and profits, which are paid for by consumers and employers. There is no requirement that any savings from these mergers be passed along to consumers or employers. In California, there is no authority to reject excessive health insurance rate increases, unlike 35 other states. We will review the mergers based on what is best for California consumers and employers. We will also work closely with other state and federal regulators,” he added.

Steven Stack, MD, president of the American Medical Association said, “The lack of a competitive health insurance market allows the few remaining companies to exploit their market power, dictate premium increases, and pursue corporate policies that are contrary to patient interests. Health insurers have been unable to demonstrate that mergers create efficiency and lower health insurance premiums…The U.S. Department of Justice has recognized that patient interests can be harmed when a big insurer has a stranglehold on a local market. Federal and state regulators must take a hard look at proposed health insurer mergers. Antitrust laws that prohibit harmful mergers must be enforced and anti-competitive conduct by insurers must be stopped.” “Based on federal guidelines, the proposed Anthem-Cigna merger would be presumed to be anticompetitive in the commercial, combined (HMO+PPO+POS) markets in nine of the 14 states (NH, ME, IN, CT, VA, CO, GA, NV, KY) in which Anthem is licensed to provide coverage,” he added.

An AMA study of the 2008 merger involving UnitedHealth Group and Sierra Health Services found that premiums increased after the merger by almost 14% compared to a control group. The study reveals a serious decline in competition among health insurers with nearly three out of four metropolitan areas rated as highly concentrated. In fact, 41% of metropolitan areas had a single health insurer with a commercial market share of 50% or more.

WellPoint Dominates the Market

WellPoint Inc. has a bigger geographic footprint than any other private health insurer in the United States, according to a study by the American Medical Association (AMA). WellPoint, soon to be renamed “Anthem,” is the largest health insurer, by market share, in 82 of 388 metropolitan areas examined by the AMA. WellPoint’s commanding position stretches across metropolitan markets in 13 states including: California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, New Hampshire, Nevada, Ohio, Virginia and West Virginia. Health Care Service Corp. was second with a market share lead in 37 metropolitan areas, followed by UnitedHealth Group (UNH) with a market share lead in 35 metropolitan areas.

AMA President Robert M. Wah, M.D. said, “The AMA is greatly concerned that a single health insurer had at least a 50% share of the commercial health insurance market in 41% of metropolitan areas. The dominant market power of big health insurers increases the risk of anti-competitive behavior that harms patients and physicians, and presents a significant barrier to the market success of smaller insurance rivals.” The study also reveals the following:

  • There was a significant absence of health insurer competition in 72% of the metropolitan areas studied.
  • Seventeen states had a single health insurer with a commercial market share of 50% or more.
  • Forty-five states had two health insurers with a combined commercial market share of 50% or more.
  • The 10 states with the least competitive commercial health insurance markets were:
    1. Alabama, 2. Hawaii, 3. Michigan, 4. Delaware, 5. Louisiana, 6. South Carolina, 7. Alaska, 8. Illinois, 9. Nebraska, and 10. North Dakota. Illinois has made its first appearance in the annual AMA list, displacing Rhode Island from last year’s list. Louisiana entered the top 5, moving from 9th on last year’s list.
  • The 10 states that experienced the biggest drop in competition levels between 2011 and 2012 were: 1. Illinois, 2. Louisiana, 3. Indiana, 4. New Jersey, 5. New Hampshire, 6. Vermont, 7. Montana, 8. Wyoming, 9. Idaho, and 10. Tennessee.

Health Carriers Are Thriving Under Stress

ViceGripThe health insurance industry has been going through a number of challenges including legislative and regulatory reform, demands from more price- and service-conscious consumers, fierce competition, shift of customer mix, and uncertain economic conditions in the United Stats and abroad. Yet the industry is thriving under stress, according to a report by Zacks Investment Research.

Big players, such as CIGNA, WellPoint, Humana, UnitedHealth, Molina Healthcare and others, have reported unfaltering growth in premium as well as fees and other income over the years. In the first quarter of 2014, these insurers had a combined 14% increase in revenues. So far, the carriers have handled some of the less onerous provisions of health care reform fairly well including MLR requirements, a ban on denial of coverage due to pre-existing ailments, dependent coverage up to the age of 26, and the annual rate review.

The question is how provisions of the law will affect the industry, such as those relating to insurance exchanges, the individual mandate, ICD-10 requirements, pre-existing conditions, Medicaid expansion, and an annual insurance industry assessment of $8 billion for 2014 with increasing annual amounts thereafter. Investor sentiment toward the reform this year and beyond will be the driving factor for managed care stocks.

Several health reform provisions are likely to increase insurers’ medical costs, such as the excise tax on medical devices, annual fees on prescription drug manufacturers, enhanced coverage requirements, and the prohibition of pre-existing condition exclusions. Also, the annual insurance industry assessment will increase insurers’ operating costs.

Confined to national boundaries until recently, the industry is flocking to international markets with fewer regulations, higher margins, greater demand, and lower competition. With a wide overseas presence, Cigna and Aetna view their international business as a positive differentiator and key driver of growth. Both companies intend to penetrate deeper into the emerging economies of Asia and the Middle East. In April 2014, Aetna bought U.K.-based InterGlobal, which offers private medical insurance to groups and individuals in the Middle East, Asia, Africa and Europe. UnitedHealth expanded its reach from Australia, the Middle East, and U.K. to Brazil with its buyout of AmilParticipacoes.

Data from Kaiser Family Foundation and the Congressional Budget Office indicates rapid growth in individual exchange markets, with approximately 22 million purchasing coverage online by 2016 and 24 million by 2023. The exchanges seem to have been well received. Moreover, 35% of new exchange insurers below age 35 led to a favorable mix. Insurers that were initially averse to participating on exchanges are planning to jump on the bandwagon for 2015 and beyond. However, with comparative shopping options and easy access to consumer information, the exchanges are likely to heighten competition among private insurers. For more information,

Consumer-Driven Health Plans Have Break-Out Year

CDHP enrollment has had a breakout year after steady increases over the past decade. More than 12% of commercial enrollment was in consumer-driven plans as of January 2013, according to the latest census of MCOs from HealthLeaders-InterStudy.

Sheri Sellmeyer, a vice president at HealthLeaders said, “National players, such as UnitedHealth Group, Aetna, and WellPoint, are driving CDHP enrollment, but so are regional insurers. The percentage of commercial enrollment in consumer-driven plans varies on a state-by-state level. One extreme is Utah, where an important regional player and a national plan are heavily marketing CDHP, which makes up almost 21% of commercial enrollment.”

“The growth of CDHPs across the country will drive patients to influence physician prescribing as more people become motivated to own their healthcare. While some will seek lower cost care and generics, patients with chronic diseases may actually demonstrate additional adherence and compliance, as those medications are often built into CDHP benefit design. For pharmaceutical companies, understanding where each brand falls within the patient priority set will be vital to forecasting the impact of CDHP,” said John Jaeger a vice president at PharmaStrat. For more information, visit

Study Looks At WellPoint’s Post-ACA Strategies

The nation’s largest commercial insurer, WellPoint Inc., is transforming its products-and its provider relationships to prepare for the new healthcare market in 2014, according to an analysis by HealthLeaders-InterStudy. WellPoint has narrow provider networks in all 14 Blue Cross Blue/Shield affiliate states. This strategy supports narrow-network plans in the healthcare exchanges, which opened for enrollment October 1, 2013.

WellPoint’s previous model was based on broad networks that included almost every local provider. Because of the changes in healthcare reform, the company is offering smaller, cost-effective network options, said HealthLeaders-InterStudy Principal Analyst Paula Wade. Depending on how the larger commercial market responds to the narrow-network designs,hospitals outside of the narrow networks could face some real strain.

These narrow-network plans offer lower premiums for individuals and groups by excluding high-cost providers. The strategy allows these low-cost networks to be offered in its other commercial products. WellPoint is already offering narrow-network products and tiered-network products in its largest market, California.

WellPoint also rewards providers for managing the healthcare of patients with chronic conditions and keeping patients compliant with their medications.  For more information, visit

WellPoint Sees Jump in Profits & Rate Increases

WellPoint announced a 24% profit increase in the second quarter of 2013 compared to last year. The company’s stock recently hit an all-time high of $90 per share. Mark Reback of Consumer Watchdog complains, “WellPoint and the other big health insurers are continuing to be two-faced when they preach austerity to their customers in order to raise premiums, then turn around and announce large profits and a record share price to shareholders. As federal health reform requires health insurers to disclose more information online, it will be harder for them to say one thing to customers and the opposite to Wall Street and investors. Most consumers remain vulnerable in many states where there are no regulations to reject excessive rate hikes, even when company profits exceed projections.” Anthem Blue Cross, WellPoint’s California subsidiary, recently imposed a rate hike on more than 250,000 small business customers. For more information, visit

Rate Shock: In California, Obamacare to Increase Individual Health Insurance Premiums by 64-146%

Angela Braly, then-CEO of WellPoint, testified before Congress about allegations that its California unit, Anthem Blue Cross, was raising premiums on some customers by more than 30 percent. Last week, California announced that the Affordable Care Act would increase non-group insurance premiums by as much as 146 percent. (Image courtesy U.S. House of Representatives)


One of the most serious flaws with Obamacare is that its blizzard of regulations and mandates drives up the cost of insurance for people who buy it on their own. This problem will be especially acute when the law’s main provisions kick in on January 1, 2014, leading many to worry about health insurance “rate shock.”

Last week, the state of California claimed that its version of Obamacare’s health insurance exchange would actually reduce premiums. “These rates are way below the worst-case gloom-and-doom scenarios we have heard,” boasted Peter Lee, executive director of the California exchange.

But the data that Lee released tells a different story: Obamacare, in fact, will increase individual-market premiums in California by as much as 146 percent.

Lee’s claims that there won’t be rate shock in California were repeated uncritically in some quarters. “Despite the political naysayers,” writes myForbes colleague Rick Ungar, “the healthcare exchange concept appears to be working very well indeed in states like California.” A bit more analysis would have prevented Rick from falling for California’s sleight-of-hand.

Here’s what happened. Last week, Covered California—the name for the state’s Obamacare-compatible insurance exchange—released the rates that Californians will have to pay to enroll in the exchange. “The rates submitted to Covered California for the 2014 individual market,” the state said in a press release, “ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions.”

That’s the sentence that led to all of the triumphant commentary from the left. “This is a home run for consumers in every region of California,” exulted Peter Lee.

Except that Lee was making a misleading comparison. He was comparing apples—the plans that Californians buy today for themselves in a robust individual market—and oranges—the highly regulated plans that small employers purchase for their workers as a group. The difference is critical.

Obamacare to double individual-market premiums

If you’re a 25 year old male non-smoker, buying insurance for yourself, the cheapest plan on Obamacare’s exchanges is the catastrophic plan, which costs an average of $184 a month. (That’s the median monthly premium across California’s 19 insurance rating regions.)

The next cheapest plan, the “bronze” comprehensive plan, costs $205 a month. But in 2013, on (NASDAQ:EHTH), the average cost of the five cheapest plans was only $92. In other words, for the average 25-year-old male non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent.

Under Obamacare, only people under the age of 30 can participate in the slightly cheaper catastrophic plan. So if you’re 40, your cheapest option is the bronze plan. In California, the median price of a bronze plan for a 40-year-old male non-smoker will be $261. But on eHealthInsurance, the average cost of the five cheapest plans was $121. That is, Obamacare will increase individual-market premiums by an average of 116 percent.

For both 25-year-olds and 40-year-olds, then, Californians under Obamacare who buy insurance for themselves will see their insurance premiums double.

Impact highest in Bay Area, Orange County, and San Diego

In the map below, I illustrate the regional variations in Obamacare’s rate hikes. For each of the state’s 19 insurance regions, I compared the median price of the bronze plans offered on the exchange to the median price of the five cheapest plans on for the most populous zip code in that region. (eHealth offers more than 50 plans in the typical California zip code; focusing on the five cheapest is the fairest comparator to the exchanges, which typically offered three to six plans in each insurance rating region.)

As you can see, Obamacare’s impact on 40-year-olds is steepest in the San Francisco Bay area, especially in the counties north of San Francisco, like Marin, Napa, and Sonoma. Also hard-hit are Orange and San Diego counties.

According to Covered California, 13 carriers are participating in the state’s exchange, including Anthem Blue Cross (NYSE:WLP), Health Net (NYSE:HNT), Molina (NYSE:MOH), and Kaiser Permanente. So far, UnitedHealthCare (NYSE:UNH) and Aetna (NYSE:AET) have stayed out.

Spinning a public-relations disaster

It’s great that Covered California released this early the rates that insurers plan to charge on the exchange, as it gives us an early window into how the exchanges will work in a state that has an unusually competitive and inexpensive individual market for health insurance. But that’s the irony. The full rate report is subtitled “Making the Individual Market in California Affordable.” But Obamacare has actually doubled individual-market premiums in the Golden State.

How did Lee and his colleagues explain the sleight-of-hand they used to make it seem like they were bringing prices down, instead of up? “It is difficult to make a direct comparison of these rates to existing premiums in the commercial individual market,” Covered California explained in last week’s press release, “because in 2014, there will be new standard benefit designs under the Affordable Care Act.” That’s a polite way of saying that Obamacare’s mandates and regulations will drive up the cost of premiums in the individual market for health insurance.

But rather than acknowledge that truth, the agency decided to ignore it completely, instead comparing Obamacare-based insurance to a completely different type of insurance product, that bears no relevance to the actual costs that actual Californians face when they shop for coverage today. Peter Lee calls it a “home run.” It’s more like hitting into a triple play.

Obama attacked insurers in 2010 for much smaller increases

That Obamacare more than doubles insurance premiums for many Californians is especially ironic, given the political posturing of the President and his administration in 2010. In February of that year, Anthem Blue Cross announced that some groups (but not the majority) would face premium increases of as much as 39 percent. The White House and its allies in the blogosphere, cynically, claimed that these increases were due to greedy profiteering by the insurers, instead of changes in the underlying costs of the insured population.

“These extraordinary increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy,” said Health and Human Services Secretary Kathleen Sebelius. “[Anthem’s] strong financial position makes these rate increases even more difficult to understand.” The then-Democratic Congress called hearings. Even California Insurance Commissioner Steve Poizner, a Republican running for governor, decided to launch an investigation.

WellPoint Sees a Jump in 4th quarter profits

WellPoint reported stronger than expected fourth quarter results. John Cannon, interim president and CEO said “The results reflect ìimproved operating performance, solid expense management, and improving execution in our core operations. We are encouraged by this strong performance, and believe it positions us well for a solid 2013.”

Wayne DeVeydt, executive vice president and chief financial officer said, “Our fourth quarter results reflected lower than anticipated commercial medical costs and stability in our membership base. Our results were supported by the strength of our operating cash flow and year-end balance sheet metrics. We are encouraged by the performance of our associates and the business in the last six months, but we also want to retain an appropriately prudent stance in our outlook, in light of what we expect to be a fluid and dynamic market over the next 18 to 24 months. This is reflected in our initial expectation for 2013 EPS of at least $7.60.”

WellPoint reports the following results:

• Membership: Medical enrollment totaled 36.1 million members on December 31, 2012, an increase of 5.5% from December 31, 2011. The acquisition of Amerigroup added nearly 2.7 million state-sponsored members during the fourth quarter of 2012. Membership also grew by 74,000 in the senior business, primarily due to expansion into new Medicare Advantage service areas during 2012. The increases in state sponsored and senior membership were offset by a 578,000 decline in local group members and a 321,000 decline in national businesses and members. These declines reflected the company’s small group product repositioning in New York and changes to its administrative fee structure for certain national accounts. Enrollment was also impacted by economy-related in-group membership attrition and competitive situations in certain local group markets.
• Operating Revenue: Operating revenue totaled about $15.3 billion in the fourth quarter of 2012, an increase of $95.8 million, or 0.6%, compared to the prior year quarter. This increase included revenue of about $316.8 million related to the Amerigroup and 1-800 CONTACTS acquisitions.
• Benefit Expense Ratio: The benefit expense ratio was 87.3% in the fourth quarter of 2012 compared to 87.6% in the fourth quarter of 2011. The decline reflects increases in senior and state sponsored businesses in the commercial market.
• Medical Cost Trend: For the full year 2012, the underlying local group medical cost trends was near the low end of  7%. Unit cost increases continue to be the primary driver of medical trend while utilization moderated over the second half of 2012. The company expects the underlying local group medical cost trends to increase during 2013 and be within the range of 7% for the full year.
• Commercial Business: Operating gain in the Commercial segment increased 22% in the fourth quarter of 2011 — driven by an improvement in the benefit expense ratio for local group business. This was offset partially by the reduction in fully insured Local Group membership and increased SG&A expense.
• Consumer Business: The company has experienced an operating loss of $173.3 million in the consumer segment during the fourth quarter of 2012, compared to an operating loss of $4.6 million in the fourth quarter of 2011. The majority of the decline in consumer segment results was driven by closing costs with the Amerigroup acquisition as well as other severance and impairment expense items. The company also saw a decline in the results of its senior and state sponsored programs and has taken steps to improve the future performance of these businesses.

WellPoint expects the following for the full year of 2013:

• Net income is expected to be at least $7.60 per share, including integration costs related to the Amerigroup acquisition. Year-end medical enrollment is expected to be in the range of 35.3 million to 35.5 million.
• Operating revenue is expected to be from $71.5 billion to $73.0 billion.
• The benefit expense ratio is expected to be 86%.
• The SG&A expense ratio is expected to be 13.5%.
• Operating cash flow is expected to be at least $2.6 billion.

For more information, visit

Last Updated 05/25/2022

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