Sept. 09--There will be fewer, bigger health insurance players in Ohio after this year thanks to a series of acquisitions. But how will these deals will affect cost and competition?
This year saw more industry consolidation as health insurers realign to meet growing business in Medicaid, the federal-state health insurance program for the poor and disabled, and Medicare, the federal health benefit program for seniors.
"I don't think down the road any consumer is going to be well served by having four, five or six very large for-profit health insurance companies serving the country and I don't think anybody really wants to see that happen," said Pamela Morris, president and chief executive officer of Dayton-based CareSource, Ohio's largest managed care provider. "We think there is a definite place for large regional plans like CareSource and large nonprofit health plans like CareSource."
Three of Ohio's biggest commercial insurance companies -- Anthem Blue Cross and Blue Shield, Aetna Inc. and Humana Inc. -- have acquired or partnered with Medicaid companies this year. That includes Humana's strategic partnership with CareSource.
The insurer Cigna also closed in January on an acquisition of HealthSpring, a Medicare Advantage health plan. UnitedHealthcare has made several acquisitions the past 10 years, most recently last year of Medicare health plan XLHealth Corp.
Another view is these deals should not act to increase insurance costs more than they are already increasing because they involve traditionally commercial-focused businesses buying companies that focus on the government. It would be more likely to impact competition if the largest commercial insurer in the country was buying the second largest one, for example.
It "does not change a lot of things for existing customers," said Peter Costa, senior equity analyst, health care, for Wells Fargo Securities LLC. "At some level these companies all expect to get some synergies by being a bigger buyer of health care services. That could help lower costs for the companies and the consumer."
Managed care -- government contracts to administer Medicaid and Medicare -- has been proven to save state and federal governments money, said Michael Muntner, managing director in the health care investment banking group for Credit-Suisse.
"I think you'll likely continue to see consolidation, particularly among the government managed care plans. I think there is far greater growth in this sector than other sectors," Muntner said. "In the government sector the price is really dictated by the state government itself. When you look at the Medicaid dollars only 20 percent of Medicaid dollars goes through managed care today. As the proportion goes up, I think the states will start to save money."
The rest of Medicaid dollars now is fees paid by the government direct to health care providers, he said.
Deals are being done in response to two driving forces: Medicaid and Medicare enrollment is growing faster than commercial enrollment; and federal health care reform, which will expand the number of people eligible for Medicaid, Costa said.
The Medicaid population is expected to grow by 15 million people starting in 2014, according to WellPoint Inc., the parent company of Anthem.
"As members' income fluctuates across eligibility thresholds, we'll be there to help them move between any product, public, private or subsidized," said Angela Braly, WellPoint's chief executive officer before her recent resignation, in a conference call discussing its $4.9 billion deal to buy Amerigroup Corp., a Medicaid and Medicare plan.
Humana and CareSource's partnership was one of the winners in August of Ohio's new dual eligibles contract, primarily serving low income elderly.
"It's clear that CMS (Centers for Medicare & Medicaid Services) and the state Medicaid agencies are looking at integrating and coordinating care for the programs. The objective of that is to once again increase the care coordination and incentives. We believe that is clearly going to increase the efficiencies and result in better outcomes," said Kevin Meriwether, regional president of senior products for Humana.
If Aetna's acquisition of Coventry Health Care closes, it will increase the company's share of revenues coming from government programs 23 percent to 31 percent. Estimates are for its reliance on commercial business revenues to decrease from 60 percent to 54 percent, according to the company.
"I think as we look at what is required to compete in health care reform in the future, having a diversified portfolio in markets where you have exchanges, where people can move freely between small group individual Medicaid, is going to be very important," said Aetna Chairman, President and Chief Executive Officer Mark Bertolini on a conference call last month to investors announcing the $7.3 billion deal.
The time to do it is now, Bertolini said in response to analysts' questions.
"Health care reform gates how quickly we needed to do a transaction. So, time is running out for us to consider something like this because we want to have it ready for integration and closed prior to health care reform 2014 kicking off," he said on the call.
Major health insurance company acquisitions and partnerships
1. CareSource and Humana Inc. partnership
Announced: March 20
Ohio membership: Dayton-based CareSource-930,000; Louisville, Ky.-based Humana-500,000
2. WellPoint Inc. to acquire Amerigroup Corp.
Announced: July 9
Ohio membership: Indianapolis, Ind.-based WellPoint (parent of Anthem)-800,000; Virginia Beach, Va.-based Amerigroup-56,000
3. Aetna Inc. to acquire Coventry Health Care Inc.
Announced: Aug. 20
Ohio membership: Hartford, Conn.-based Aetna-700,000; Bethesda, Md.-based Coventry-DND
4. Cigna Corp. acquires HealthSpring
Announced: Closed Jan. 31
Ohio membership: Bloomfield, Conn.-based Cigna-259,000
SOURCES: respective companies
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