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Big health insurers merging: What it means for you

Health care giant Aetna, headquartered in Hartford, Conn., recently announced that it’s acquiring Louisville-based Humana in a nearly $40 billion deal scheduled to close in mid-2016. Additionally, Anthem, another large health insurance company, revealed that it has made several offers to buy CIGNA.

What do health insurance mega-mergers mean for the health care consumer? Here are three ways to look at it.

Pricing power

A health insurance company’s biggest expense is the cost of the claims it pays to hospitals, doctors and other medical providers. One factor in that cost is how much medical care the insurer’s customers need. If customers are healthy and make smart decisions about how to use the health care system, claims costs are lower. If they are not healthy and make poor decisions about how to use the heath care system, then claims costs are higher.

Another factor affecting the cost is the price the cheap health insurance company pays per unit of medical care. In other words, how much does the health insurance company pay the doctor for your office visit or the hospital for your surgery? Insurance companies negotiate these prices with your doctor and hospitals. Generally, the bigger the insurance company gets, the more power it has to negotiate lower prices.

As a result, the insurance industry would argue health insurance mergers are a positive for consumers. Why? Because if the new, larger insurer is able to negotiate lower prices, then it can ultimately charge consumers less in premiums.

Other cost savings

In addition to lower costs generated by having more pricing power with medical providers, the merging insurance companies believe they should be able to generate savings in other areas. For example, in markets where they both exist, they’ll be able to use one advertising budget instead of two. In other areas where their businesses overlap, the insurers may be able to reduce the number of administrative and management personnel they employ. For products where they each have distribution channels, the company can choose to focus on just one and shut down the others.

Similarly, the insurance industry would point to this as being a positive. If their costs are lower, they can charge customers less in premiums.

Provider response

Many wonder how medical providers will respond to these mergers. One possibility is that providers who do not like increased “pricing power” from insurers will develop their own health plans.

AthenaHealth is a disruptive company in health care that represents this type of provider. Jonathan Bush, the company’s CEO, recently said one opportunity for his company in response to these mega-mergers is “to step in to some of the nooks and crannies that the payers have sort of been asleep at the switch on, in terms of creating narrower networks of more tightly coordinated doctors and hospitals that might be able to offer employers a lower cost in exchange for a deal where employees only use a specific set of teams for specific types of care.”

This could mean bypassing the insurance companies and going directly to employers. As more and more individuals get their own coverage, it could even mean providers getting together to create a low-cost, local health plan that individuals could purchase on the exchange.

Alternatively, some doctors may decide to opt out of the third-party payer system entirely and adopt a new business model directly with their patients. One example of this is direct primary care, where the primary care provider charges a monthly subscription of $50 or so per month. In return, the patient gets unlimited primary and chronic care management, as well as the ability to call and email with the doctor.

In the near term, health care consumers may have fewer options as a result of insurance company mergers. Depending on how doctors and hospitals respond, though, we could eventually end up with more.

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