The Health Plan Consolidation Game

The health plan consolidation game is heating up.  Anthem has now announced a firm and expensive bid for Cigna, while Aetna appears to be seriously pursuing Humana.  (Forbes Article)   The largest health plans in the United States–UnitedHealth, Anthem, Aetna, Cigna, Humana, Kaiser (difficult to acquire as it is non-profit) and Health Care Service Corporation (another Blues company, including Texas and Illinois, and also non-profit) cover over half the insured population, over 150 million Americans.  That is a pretty concentrated market and in many geographies, only two or three of these companies are real factors so many local markets are even more concentrated.  As usual, you have to suspect that suggesting consolidation is a poor substitute for companies that can’t figure out any other way to compete effectively or grow.

The dynamics here are complex.  If any of the larger health plans thinks it really is possible that the regulators would allow combinations among them, then they all will want to be part of the consolidation.  As a defensive measure, a plan that thinks it may be an acquisition target might propose an acquisition of its own.  And some players might throw possible deals out just to mess with competitors.  It is very disruptive internally and externally for a firm to be mentioned as a takeover target.  I think it highly unlikely that the current federal antitrust authorities, much less some of the state ones, would allow consolidation among any of these large players, with the possible exception of Cigna and Humana, since Cigna is weak in Medicare Advantage and Humana does not have a huge commercial presence.  And the providers will howl loudly about any combination and they do have substantial political power.

The shareholders of a surviving company will likely not be well-served by a combination.  The prices are high, there probably are few real cost synergies to be obtained, integration will be a mess, and several of these companies aren’t that well-run to begin with (a benign regulatory and health cost environment can make any health plan look good for a while).  I see no good rationale for a round of consolidation and I don’t think the public would be well-served by one.  Better for all of these firms to stick to their knitting, which should be managing their members’ care and health effectively, improving their sales and marketing capabilities, especially as directed to individuals in  commercial and government plans, and creating better health information technology that leads to lower administrative costs.  But that would require real management skills.