Whether anything actually comes of all the merger mania, or whether such mergers prove good for consumers, remains to be seen.
A month ago Humana seemed the most likely target, with Aetna the most likely suitor. Humana was not too big, not too small, and their big book of Medicare Advantage business complimented Aetna's more commercial portfolio. Cigna was mentioned as another possible target, but pretty much only offered Aetna more of what they already had.
Shortly after that rumor started, Anthem got tongues wagging by their CFO telling analysts they were looking "to do a cash transaction of meaningful size." The speculation again centered on Humana, or possibly some Medicaid insurers like Molina or Centene.
Now, everyone seems to be in play. The Wall Street Journal reported that Anthem has made overtures to Cigna, while United is interested in Aetna, with Humana still attractive to Aetna and Cigna. Here's the WSJ infographic:
You can't make this stuff up.
It would be ironic if Humana was one left standing in this game of musical chairs, but many feel their assets are too inviting to be left out.
The Anthem/Cigna combination struck me as the oddest. Anthem is historically and primarily a Blue Cross Blue Shield plan. BCBSA rules are pretty strict about not combining Blue and non-Blue business, which could limit taking advantage of the consolidation to get more clout in negotiating with providers. Then I remembered that Anthem already has a substantial non-branded line of business through its UniCare subsidary, whose self-funded, large employer portfolio would mesh very well with Cigna's strong presence in the large employer market.
The United/Aetna combination, on the other hand, might pose concerns with regulators, although in most markets might still pass FTC market share tests. United is less likely to be interested in Humana because it already has a strong Medicare presence, between its Medicare Advantage business and its AARP health insurance products.
I'll let others talk about market caps, stock prices, P/E rations and the like. I'm more interested in why we're seeing this, and what we're not seeing.
One conventional wisdom is that these kinds of mergers/acquisitions have to do with scale, since ACA puts restrictions on health plans' overhead (the MLR). Bigger means more lives to spread such costs over. The other culprit often cited is a desire to gain more clout with providers, who themselves are consolidating, although mostly at the local rather than the national/regional level.
I've expressed my concerns about provider consolidation before. Health systems seem intent to gain control of geographic areas, which can be as large as whole metropolitan areas. They usually do so in the name of fending off bigger and bigger health plans, or say it is part of a strategy to be an integrated delivery system, which is becoming more important in an ACO/value-based world.
The trouble is, no matter how big health plans get, if they face markets where there is, in essence, only one provider with which to negotiate, size doesn't really matter. If a health plan can't convince their members to drive much longer to go to another health system, it doesn't matter if they have ten members or a million members when it comes to playing tough with the dominant health system. Bigger isn't always better.
You can make dinosaurs bigger, but that doesn't make them more agile or better prepared to deal with new risks. I'm wondering when we're going to see not bigger health insurers, but truly different models for them.
It wasn't all that long ago that pundits were predicting the end of health insurers. They were going to be replaced by ACOs and other delivery systems bearing risk. ACOs are certainly booming, but the stock market doesn't seem too worried about health insurers going out of business.
We've seen true integrated provider/health plan models like Kaiser, Group Health Cooperative, or Geisinger for decades now, and they're generally successful in their core markets, but that model hasn't proved easily replicable.
We've also seem health system building their own health plans, such as Intermountain Healthcare, Sentara, or UPMC. We've even seen health plans buying/building their own health systems, such as UPMC's bitter rival Highmark Health. Two years ago Anthem chose the leader of a large hospital system as its new CEO, signaling that the lines were going to be blurrier.
It's again kind of ironic to remember that Humana started out as a nursing home company, became a hospital chain, got into the health insurance business, and only shed its provider side in the early 1990s.
If Anthem buys Cigna or United buys Aetna, it wouldn't be all that interesting, nor would it be novel. Those are dinosaurs getting bigger but not evolving. We've already seen those kinds of combinations. They might be good for investors but raise your hand if you think they've ever really led to breakthroughs in health for their patients/members.
If, on the other hand, Humana and HCA got back together, that would be interesting. That would be provider/payor integration writ large, and maybe produce something new.
And if, say, CVS or Walgreens chose to merge with a health insurer, that would something even more unique. I don't know how they'd change the health insurer, but it might be fun to find out.
Honestly, though, what I'd really love to see is a company from an entirely different sector, hopefully one with a strong consumer focus, buy into the health insurance business. Maybe Humana should get back together with the Virgin Group, or perhaps Walmart would be interested in taking over a Medicaid managed care or Medicare Advantage plan. Wouldn't you love to see Walmart take on the health care supply chain? I bet they could squeeze better value out for its customers.
Jurassic World seems to be raking in the money despite being just another sequel about rogue dinosaurs. Let's hope we see something with health insurers that isn't just another sequel as well.
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