Anthem to buy Cigna — and then there were three: 7 key points

Ayla Ellison & Molly Gamble | July 23, 2015

Anthem announced that it has reached terms to buy Cigna. Earlier this month, Aetna inked a deal to acquire Humana. These two mergers involve four of the five largest payers in the nation and will greatly shift the healthcare landscape.

This consolidation at the very core of the healthcare industry may have a very negative impact on employer healthcare costs and the costs of insurance coverage. It greatly strengthens the hands of the payers vis a vis employers and vis a vis providers. It is likley to provide payers with greater leverage and market power with each audience.

Here are seven key points about the payer consolidation.

1. In the U.S., the big five payers have traditionally been Aetna, Blue Cross Blue Shield — which includes 36 companies, the largest being Anthem — Cigna, Humana and UnitedHealthcare. Whether looking at revenue, market share or presence in a specific area such as Medicare Advantage, each of these insurers is a major to dominant force in the industry.

2. With Aetna acquiring Humana and a deal in the works for Anthem to takeover Cigna, the landscape drastically changes, and there will be three key payers instead of five.

3. While not yet a single-payer system, consolidation is causing the system to look more like a small oligarchy. It may actually lead some parties who hated the idea of Medicare as a single payer to desire this. It may also over time lead to the proliferation of new payers.

4. The consolidation is quite frightening for smaller providers of all sorts as it leaves them with fewer access points for patients. The leverage of providers with payers will take a significant hit.

5. The consolidation is unlikely to reduce employer costs or really bend the cost curve as such payers will also mean less options for employers and more leverage with employers. A recent AON Hewitt survey noted that 46 percent of large and midsize employers expect a negative impact from health insurer consolidation and only 21 percent saw it as good thing for costs. As the number of insurers shrinks from five to three, those payers will likely have more leverage on both sides of the equation — with employers and providers. Employers who are large enough may resort to trying to work around the payers.

6. Anthem is reportedly offering more than $48 billion for Cigna. Cigna rejected Anthem’s offer of $47.5 billion — $184 a share — in June, calling it “inadequate and not in the best interests of Cigna’s shareholders.” Cigna shares closed Wednesday at $151.13, a market value of about $39 billion, although shares rose about 8 percent in after-hours trading following reports of the impending deal. In the other deal, Aetna agreed to buy Humana for $34 billion, $230.11 a share.

7. The CEOs of what would be the remaining big three — Mark Bertolini (Aetna), Joseph Swedish (Anthem) and Stephen Hemsley (UnitedHealth) — are highly regarded. Decisions about leadership can make or break a potential agreement. For instance, talks between Anthem and Cigna started last summer but broke down over issues about who would run the combined company, the Wall Street Journal reported.

Source:  Beckers

http://www.beckershospitalreview.com/payer-issues/anthem-to-buy-cigna-and-then-there-were-3-7-key-points.html