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Multiple news sources report that Indianapolis-based health insurer Anthem is in final negotiations to acquire competitor Cigna of Bloomfield, Connecticut. The deal would value Cigna at approximately $48 billion, or $188-per-share, according to unnamed sources.
Aetna announced earlier in July that it would buy rival Humana for $34.1 billion in cash. Both deals would face extensive scrutiny by federal antitrust regulators at the Justice Department and Federal Trade Commission. Many analysts consider it unlikely that both deals would be approved, since they would reduce competition for health insurance customers and concentrate more pricing power in insurers' hands.
The wave of proposed mega-mergers comes as insurance companies face financial pressures under the Affordable Care Act, which has been reaffirmed in recent Supreme Court decisions that turned back major legal challenges to the law.
If the mergers succeed, the number of major national health insurers would be reduced from five to three: Anthem, Aetna and UnitedHealth Group.
Management professor J.B. Silvers at Case Western Reserve University says there are compelling benefits to the bottom line for insurance companies to consolidate under Obamacare. He says the financial risk of healthcare is being shifted away from insurers, onto healthcare providers and the government. That leaves insurers needing to make more of their profits from paying claims. “Paying claims is a volume business, so this gives them some economies of scale, and it will lower their costs,” says Silvers. “Plus, the fact there are a lot more people buying health insurance because of Obamacare makes it a more lucrative market than it's ever been.”
Healthcare economist Vivian Ho at Rice University says insurers are being driven to merge by another key constituency in the rapidly-changing healthcare industry: healthcare providers. She says Obamacare has driven hospitals to merge, doctor’s groups to get bigger, and hospitals to acquire doctor’s groups. That’s increased the providers’ power to negotiate favorable deals with insurers. She says insurers are trying to consolidate to even the playing field.
Ho points out that even if the biggest insurers succeed in merging and cutting costs, they can claim some of the financial benefit won’t go to their bottom line, because of complicated rules on profit-taking under Obamacare. “I think the insurance companies are going to say, ‘We have to pay 85 percent of our premiums on health care expenditures, so that means cost savings will be passed on to the consumer,’” says Ho.
Ho says insurers have figured out ways to get around these Obamacare limits, for instance, by categorizing more client services as ‘health care expenditures.’
Antitrust regulators, meanwhile, will closely scrutinizing these proposed deals, to determine whether the merged insurers are likely to end up with too little competition — nationwide, or in specific geographic and medical markets, such as Medicare — or whether the merged insurers will gain too much power to set terms and prices for consumers, hospitals, doctors, and employers.
On today's show, we'll talk about news that the number of people signing up for unemployment benefits fell to a low not seen in four decades. Plus, we'll talk about the merger between two health care giants: Anthem and Cigna. And Portland Oregon’s two defining cultures – tech and bikes – have come together to improve transportation infrastructure using a new app that will anonymously track behaviors, and preferred routes of cyclists, with or without the app. The data from these combined technologies will act as a guide for decision-making when planning bike lanes, routes, and signals.