Consumer-Driven Health Could Get Momentum With Merger

By Staff Report

Dec. 7, 2004

The $300 million purchase of a consumer-driven health care specialist by a mainstream HMO could “legitimize” the consumer-driven model and spur innovation, according to Business Insurance.

UnitedHealth Group, a Fortune 100 company, is acquiring Definity Health, which has been offering consumer-driven health care options to 23 of the Fortune 500 companies.

The acquisition could affect the health care market in three ways, according to Business Insurance. For one, it could force UnitedHealth’s rivals to more quickly adopt consumer-driven options in order to compete. Secondly, it could expand the number of consumers who have access to a consumer-driven option. Many employers would like to offer a consumer-driven plan but don’t want to switch vendors. UnitedHealth clients now won’t have to switch.

Also, the acquisition could do what many acquisitions do on Wall Street: usher in a wave of investment and consolidation because it’s a sign that “there’s definitely money to be made in consumer-driven health care,” according to Business Insurance.

One interesting wrinkle in the acquisition: It’s a near lock that UnitedHealth will have thousands of new enrollees in consumer-driven plans next year. That’s because the company is moving all of its own employees to high-deductible health care plans.

“Much to learn”
Alexander C. Domaszewicz of Mercer Human Resource Consulting says that the deal with be both positive and negative for employers.

On the positive side, Domaszewicz says, “Definity now has access to very deep pockets for development and growth.” Also, it may improve service for UnitedHealth customers who want to offer a high-deductible option to their employees. “UnitedHealth has much to learn and to borrow from Definity in terms of a new health care delivery model, tools, choice, design and consumerism. This knowledge transfer will be much more than UnitedHealth adding Definity Web capabilities to its tool box.”

As for negatives, he says, “Integrations and mergers are never pretty operationally or culturally, and this one will be no exception.” He says that if Definity continues to run semi-independently for a while, it could mitigate some of the transition problems. And Domaszewicz says the merger could slow down, not increase, innovation. “UnitedHealth owning Definity will reduce the likelihood that Definity will continue to revolutionize health care and push the envelope in terms of cost and quality transparency,” he says.

This, he says, is because while UnitedHealth has been innovative over the years, “they have a very large vested interest in continuing some version of the system that has allowed them to become one of the two largest providers of private health care in the country.” He notes that in the late 1990s, when the founders of Definity approached UnitedHealth about starting a consumer-directed health plan together, UnitedHealth turned down the offer.

Also, “the existing structure of behind-the-scenes negotiated discounts through provider networks is one of the largest value propositions of established carriers like United,” Domaszewicz says. Startups such as Definity and Lumenos have more transparent business models and have been challenging the status quo.

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