Anthem Deal For Cigna Would Hasten Health Insurance Consolidation
Anthem finally bagged its prey.
The Indianapolis-based health insurer Anthem reached an agreement Thursday to pay $54 billion for rival Cigna, based in Bloomfield, Conn. Cigna rejected a lower Anthem bid in June, calling it inadequate.
"We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve," said a statement announcing the deal that was attributed to both companies' CEOs.
It's the second huge health insurance deal to be announced in a matter of weeks. In early July, Aetna agreed to buy Humana for $37 billion.
Both transactions are part of a wave of consolidation within the health insurance industry, and health care overall.
One reason these health insurers are seeking to get bigger is that the hospitals and doctor groups across the negotiating table have also gotten bigger.
There were 95 hospital mergers and acquisitions in 2014, according to management consulting firm Kaufman Hall. That's pretty much been the pace for the past few years. Deals that create larger health systems give the providers of health care more leverage in negotiating rates with private insurers.
In recent years, hospitals and health systems have added to their negotiating clout by employing more doctors directly and buying doctor practices. Some health systems have even started their own insurance businesses.
The hospitals, for what it's worth, generally say they need to combine forces because insurers had already bulked up in previous rounds of dealmaking.
Another factor in the two insurance megadeals announced this month is a grab for a bigger share of the market for lucrative, privately run Medicare Advantage plans.
Neither the Aetna-Humana deal nor the Anthem-Cigna deal is expected to close until the second half of 2016, the companies said.
The potential transformation of the commercial health insurance market is profound. And antitrust regulators will have to weigh in on the proposed deals, which would reduce the ranks of the top for-profit health insurers to three companies from five today. UnitedHealth Group, now the largest private health insurer, rounds out the lists.
Regulators have "never been faced with mergers of this significance," David Balto, an antitrust attorney and former Federal Trade Commission official, told Forbes'Dan Diamond. "When there are two deals of this size, you really end up in a hornet's nest. I think there's a pretty strong likelihood that these deals will be blocked."
The American Medical Association came out swinging Friday. "We have long cautioned about the negative consequences of large health insurers pursuing merger strategies to assume dominant positions in local markets," said a statement from AMA President Dr. Steven J. Stack. "Recently proposed mergers threaten to increase health insurer concentration, reduce competition and decrease choice."
The AMA said its own analysis of insurance markets had found "a serious decline in competition" among insurers, with almost 3 of 4 metropolitan areas already rated as highly concentrated under federal guidelines. Stack's statement also said that the AMA's analysis of the proposed Anthem-Cigna merger suggests it would be anticompetitive in many of the states where Anthem is licensed.
The AMA statement called on regulators to "take a hard look at proposed health insurer mergers" and to enforce antitrust laws to halt those that would be harmful to competition.
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