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Mergers concentrate health insurers

Employers wary of how costs will be affected

Mergers concentrate health insurers

Consolidation among the largest U.S. health insurers will increase their clout with health care providers, but whether that means lower costs for employers remains to be seen.

Aside from costs, experts say health insurer mergers likely would result in fewer options in health plan designs from which employers could choose.

Industry observers say Aetna Inc.'s proposed $37 billion acquisition of rival Humana Inc. has added pressure on other national and regional health insurers to merge to remain competitive.

Most notably, the Aetna-Humana deal increases the likelihood of a merger between Anthem Inc. and Cigna Corp., whittling the top five U.S. health insurers — which control approximately 32% of all health insurance premiums in the U.S., according to the National Association of Insurance Commissioners — down to just three.

In another deal, St. Louis-based Centene Corp. in early July agreed to buy rival Woodlands Hills, California-based Health Net Inc. for $6.3 billion.

“We're heading into an era of huge players in the health care industry, on both the insurers' side and on the health care providers' side,” said Mike Thompson, a New York-based principal and health care practice leader at PricewaterhouseCoopers L.L.P.

“The ability of the insurers to represent more significant market share may lead to more competitive financial arrangements over time, and to the extent that those are done on behalf of employers, I think they'd find value in that,” Mr. Thompson said. “I think the devil ultimately will be in the details as to how the consolidation occurs and the degree to which insurers leverage that increase in scale to the benefit of clients as opposed to limiting competition amongst themselves.”

Cost management

In a July Aon Hewitt survey of 100 employers, 21% said they believe the efficiencies of a more consolidated health insurance marketplace will ultimately result in better cost management.

“Assuming that insurers' increased scale are able to negotiate better prices with providers, the real question is going to be how much of that translates through underwriting into the prices that they pass along to employers versus how much of it falls to the bottom line,” said Tucker Sharp, global chief broking officer of health at Aon Hewitt in Somerset, New Jersey. “I think it's going to be a mix of both.”

Also difficult to predict, experts said, is the effect further consolidation among health insurers would likely have on the range of health plan options available to employers, particularly at the national and large regional levels.

Forty-six percent of employers in the Aon Hewitt survey said they believe they will have fewer plan options as health insurers consolidate.

“There's a fear out there among employers that there could ultimately be something of a monopoly created by this kind of significant consolidation that could force out the smaller regional and nonprofit health insurers,” said Chuck Smithers, interim CEO of the National Business Coalition on Health in Washington.

“I don't know that it's altogether well-founded, because there are going to be markets where the big companies won't pursue, primarily employer groups of 500 lives or fewer,” Mr. Smithers said.

Experts said significantly reducing the number of plan options could accelerate employers' migration to self-funding, which already stood at 61% of covered workers in 2014, according to the Kaiser Family Foundation. That would be especially true if insurers taper the provider networks they offer through fully insured plans to further reduce their costs.

“I think you're going to see some impacts on plan funding and design strategies, likely with a greater shift to self-funding,” said Tim Prichard, executive vice president and national employee benefits practice leader at Wells Fargo Insurance Services USA Inc. in The Woodlands, Texas. “Employer access to providers might also be impacted negatively. I think insurers are going to move deeper into tiered provider networks that offer a narrower set of choices.”

Experts also expressed concern about how health insurer consolidation would affect the industry's ability to deliver innovative solutions such as data analytics, web-based consumer tools and telemedicine to employers, particularly in the near term as health insurers focus on integration.

“As consolidation moves forward, the incentives to innovate do tend to dry up,” Mr. Smithers said.

“The problem is the companies are pulling in all of the various positive and negative components of a competitor, and it takes them a long time to figure out what direction they want to take with them, and what happens there is that a lot of good ideas that might have been on the drawing board tend to evaporate,” he said.

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