Effect of Health Insurance Carrier Mergers on Plan Sponsors

Recently, Anthem announced it plans to purchase Cigna—which would make Anthem the industry’s largest health insurance carrier in terms of medical membership. Before that, Aetna Inc. announced it would purchase Humana Inc. Both deals are expected to close in the second half of 2016.

Tucker Sharp, global chief broking officer of Aon Health, based in Somerset, New Jersey, tells PLANSPONSOR there are several things driving this activity. First, the Patient Protection and Affordable Care Act (ACA) legislation enables and requires significant change in way U.S. health insurance companies do business. “I think everyone was waiting for the Supreme Court decision about health care premium subsidies for states that use the federal insurance exchange. If it had invalidated those subsidies, these announcements wouldn’t have happened,” he says.

Another motivation is efficiency, according to Tucker. He notes that insurance carriers are facing significant pressure to drive down costs and increase profitability, so they are looking for ways to bring costs down. The acquisitions will increase scale. In response to doctors and hospital groups merging, these acquisitions will help carriers gain greater leverage for deeper discount negotiations. Finally, Tucker says, debt is relatively inexpensive in the market right now, so entities can fund mergers more easily.

Following the Anthem announcement, Aon Hewitt conducted a brief pulse survey of approximately 100 companies of a mix of sizes to gauge their initial reactions to current and future carrier consolidation. Twenty-one percent said carrier consolidation will provide greater cost efficiencies that will be reflected in better cost management. Forty-six percent, however, believe it will result in fewer health plan options for them and their employees. One-third said it will not greatly impact their organization or employees.

Tucker notes that there have been four national players in the health insurance industry for a while—the Blues (e.g. Anthem Blue Cross), Aetna, Cigna and United Healthcare. If the mergers are approved, four will go down to three. It will increase assets of for both Anthem and Aetna, which will likely result in more innovation.

Aon Hewitt expects a shift in the health insurance space will happen in the next couple of years, providing an opportunity for innovation, network configuration, and different reimbursement methodologies. He notes that carriers are already experimenting with patent care in homes and accountable care organizations, in which, instead of paying a fee for service, providers get paid for results. It also expects changes in programs and plan designs. “There will be another morphing of the private exchange landscape,” Tucker says.

He adds that in the near term, Aon Hewitt expects to see an emergence of regional carriers that will fill some of competition gap when four national carriers go down to three.

Tucker noted that following this first wave of actions, 54% of sponsors responding to Aon Hewitt’s survey are considering changes. These include:

• Reassessing their current vendor within the next two years (38%);
• Adopting third-party vendor solutions, such as telemedicine or transparency to supplement what the health plan provides (13%); and
• Supplementing national carriers with regional/local players (5%).

Companies share a similar sentiment on their future retiree health strategies. More than three-quarters (76%) said that consolidation will not impact their decision-making in the short term. Fourteen percent said the potential market disruption will encourage them to take a “wait and see” approach regarding custom group or exchange-based strategies, and just 10% said it will provide an opportunity to make changes and leverage the potential for new market efficiencies.

Tucker says any material impact from these mergers will not be experienced by plan sponsors until 2017, so it won’t affect renewals for 1/1/17. “Plans should focus now on executing short-term strategies, not turning strategies around due to the expected impact of these mergers,” he suggests.

He says sponsors should think about how to control health care cost increases now, because whether mergers get approved or not, health care costs are increasing more than inflation, so employers should focus on what to do to stem that. “Employers know they need to take action now to address the impact of inevitable premium increases.”

In addition, health plan sponsors should keep in mind the upcoming ACA excise tax, Tucker adds. If employer plan costs are above a certain threshold in 2018, it will trigger a 40% tax for employers. Tucker notes that many are changing their programs, such as adopting private health care exchanges. “We found that when employees get a stipend to choose among plans, they opt into the lowest-cost plan so they will not have to pay the difference,” he says.

Plan sponsors may also be cutting back on the benefits they offer or shifting costs. However, even though they don’t have to take specific actions now in response to health insurance carrier mergers, Tucker says they should stay vigilant because health care will change and they should pay attention to innovations springing up that will reduce costs.