Healthcare Consolidation: a Fight between Giants

There are only five main healthcare insurance providers in operation in the United States: UnitedHealth Group, Humana, Cigna, Anthem, and Aetna. These industry titans are responsible for nearly everything you hear about healthcare – the rising premiums, the confusing restrictions, and of course the loud pushback against the Affordable Care Act.

Although some might argue these companies' top priority should be patient health, they are businesses that function just as all businesses do – with profit as the primary motive. In order to best protect their bottom lines, many of the insurance industry's top players are looking to grow even larger through consolidations of epic proportion.

Just recently, UnitedHealth made a run at Aetna, while Anthem has penned a deal to absorb Cigna for an unbelievable $48 billion. Humana quickly put itself up for sale, and both Aetna and Cigna (yes, the two that seem to be up for grabs themselves) have both considered taking over Humana.

As the five major insurance organizations reorganize themselves into just two or three providers, Americans are justified in feeling concerned. This moves the market just a small step away from true monopoly status, and the insurance companies know it. They mostly look to consolidate as a way to gain power in the field and amass financial resources – resources they can then use to hire regulatory experts and lobbyists. The former group helps make sense of the web of regulations thrust upon insurance companies, while the latter group slowly works to dismantle that same web.

Although the mergers themselves are bound to be quite costly, most of these massive organizations cite ambiguous benefits like "synergy" and "impact" as reasons to move forward with the consolidation. In fact, Anthem is already claiming that this synergy will save them $2 billion post-merger. As these vague corporate buzzwords don't likely have a line for themselves in the accounting books, it may be difficult to verify this claim.

There are other reasons companies like Anthem are looking to merge, as well. For example, hospitals have also started to expand in recent years, for much the same reason the insurers have. Hospitals that band together to form networks buy themselves clout to use in negotiations with insurance companies, securing the best possible deals as medical suppliers and patient providers. If the hospitals insist on growing, insurance companies can't help but feel pressure to expand just to keep up the pace.

All this leaves patients cowering in fear, painfully aware of their diminutive stature as an explosive battle ramps up between Goliath and, well, Goliath. And while individuals are of little concern to insurance companies right now (the majority of their business comes from employer plans), that may change with some of the new mandates under the Affordable Care Act. Businesses are scrambling to rebrand their employees as "part-time" in order to avoid paying benefits, opening the floodgates for a deluge of new individually-insured customers in the coming years. It remains to be seen how these consolidations will play out. On both sides of the battle, insurance companies and hospitals claim to be fighting for the influence to lower costs while simultaneously clamoring for the right to unchecked pricing power.

As far as hospital administrators are concerned, they'll need to keep tabs on the insurance companies and consider how this will affect their own patients. Are their hospitals part of a network that can stand up to an insurance Godzilla? How transparent are they being with patients about costs, and can they afford to lower prices if the corporate climate demands it? Are they willing to sever ties with certain insurance companies (or at least threaten to do so) if the situation gets out of hand? These questions are intentionally big, framed to match the grave concerns of individual patients who have no choice but to watch a face-off between healthcare's biggest heavyweights.

Modern Healthcare
Bloomberg View

About the Author:
Iris Stone is a freelance writer, editor, and business owner who has written on a range of topics. She has experience covering content on medicine, healthcare, and career training, as well as education. Iris is also interested in science and mathematics and is currently studying to be a physicist. Check out her Google+ Profile.

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