Insurer Merger Mania Poses No Threats — for Now

By Rita Pyrillis

Sep. 20, 2015

The health care industry has been in consolidation mode in recent years, adding to the uncertainty employers face in the Affordable Care Act era, but while the recent spate of proposed insurance company acquisitions and mergers has triggered much hand-wringing, experts say most large employers have little to fear.
“The least-affected group in all of this are the large self-insured employers,” said Mark Pauly, a health care economist at The Wharton School at the University of Pennsylvania. “The most affected are those who are buying their insurance on the public exchanges or are enrolled in a Medigap plan. It’s not necessarily good for employers, but it’s a lot worse for everyone else.”
Merger mania has hit the health insurance industry in the months following the U.S. Supreme Court’s 6-3 ruling on King v. Burwell upholding the legality of tax subsidies to help individuals buy insurance on the federal exchanges. In two of the biggest deals, Aetna Inc. announced July 3 its intentions to acquire Humana Inc. for $37 billion, while Anthem Inc. plans to acquire Cigna Corp. Anthem’s $54.2 billion deal for Cigna will create the nation’s biggest health insurer with 53 million health plan enrollees, surpassing UnitedHealthcare, the current dominant player.
The consolidations are a direct response to the ACA, which is intended to encourage competition among insurers.
“The insurers counter that the way we can avoid that is by buying those firms that would undercut us,” Pauly said. “This is a counterattack by the industry against the ACA.”
Opinions on how this will affect employers vary widely.
“There was a lot of play in the national media in the first few days after Anthem and Cigna made their announcement saying, ‘Oh, my God, this means a loss of choice, and that’s terrible for employers,’ ” said Tucker Sharp, global chief broking officer at Aon Hewitt. “But there have been just four national players for a while. If these mergers are approved, there will be a new landscape for health care solutions. The con is there will be three players, but the pro is that the three will have greater negotiating clout to make better deals. So fewer choices, but more leverage.”
Differing views are reflected in Aon Hewitt’s recent survey of employers on the issue, which found nearly half — 46 percent — said consolidation will result in fewer health plan options for them and their employees, but 21 percent said they expect to see greater cost efficiencies. One-third of the 100 employers surveyed said consolidation will not have a significant effect on them or their employees.
Still, there is concern among employers, according to Brian Marcotte, president and CEO of the National Business Group on Health.
“Our membership is large employers, many are multistate employers who need providers that can contract on a nationwide basis,” he said. “They must offer more than one national plan and to have them compete on strategy, cost, innovation, among other things. When you look at that market today, there are only a handful of carriers that can support these employees. Employers are worried about being able to drive competition between the two or three that will be left.”
Sharp cautioned employers not to get too far ahead of themselves. First, the acquisitions will have to pass antitrust scrutiny by the U.S. Justice Department.
“Any material impact will not be experienced by employers at least by 2017,” he said. “They should focus on short-term health strategies and not overly worry about changes to accommodate for this.”
Pauly agrees that large, self-insured employers will not be greatly affected by insurance industry tie-ups.
“They need to worry about this but in the short run, employers are not in the crosshairs,” he said. However, employers need to be cautious.
“Merging partners always say they will achieve substantial synergy and lower costs and that now we will be able to fight back better against hospitals, but the research doesn’t suggest that it happens all that much,” Pauly said. “Keep your eye on them. Watch them like a hawk, and don’t fall for the notion that enormous efficiencies will result.”
Rita Pyrillis is a writer based in the Chicago area.


blog workforce

We build robust scheduling & attendance software for businesses with 500+ frontline workers. With custom BI reporting and demand-driven scheduling, we help our customers reduce labor spend and increase profitability across their business. It's as simple as that.

Book a call
See the software

Related Articles

workforce blog


EEOC says that employers legally can offer incentives to employees to get vaccinated in almost all instances

If you’re an employer looking to get as many of your employees vaccinated as possible, you can rest eas...

ADA, CDC, COVID-19, EEOC, GINA, pandemic, vaccinated

workforce blog


Fixing some common misconceptions about HIPAA

Ever since the CDC amended its COVID-19 guidance to say that the fully vaccinated no longer need to wea...

COVID-19, health care, HIPAA, human resources, wellness

workforce blog


We are in the midst of a public mental health crisis; how employers can help

Do not ignore these issues or your employees who are living with them. Mental health illnesses are no d...

ADA, benefits, Coronavirus, FMLA, mental health, paid time off