“The only hope is more hospitals/health systems take-risk based contracts as accountable care organizations and fill the national void with myriad local fee standing health plans who can give the remaining national carriers a run for their money and keep competition alive.”
Brokers Must Become “Aggressive Sentinel” In Wake of Anthem-Cigna Merge
BY MIKE NESPER
JUL 24, 2015
With Friday’s announcement that Anthem will buy Cigna, the U.S. health insurance market will be controlled by three major companies. What will that mean for the industry? What will it mean for benefit brokers?
Michael Turpin, the former CEO of UnitedHealthcare’s Northeast region who has 32 years of experience as a broker, consultant and health care executive both in Europe and in the U.S., shares his thoughts on the merger.
What does the merger mean for the industry?
Brokers and consultants obviously get worried when there is not enough competition among carriers. We believe that competition tends to drive efficiencies, reduce excess margins, increases transparency and serve as a sort of sentinel reward those who add value and punish players who underperform or over price.
There is still too much opaqueness in our business. That said, size matters in this arms race of health care where providers and insurers have been wrestling over reimbursement and clinical protocols around care management and quality.
Both Cigna and Anthem have distinguished themselves with specific strengths but also can’t compete across the spectrum of products because of lack of market share or systemic limitations.
In the case of Anthem, they have the Blues brand and great unit cost in most markets. They are a force in the individual and group insured market. Cigna has distinguished themselves with strong customer service, an effective strategy to offer self-insured and partially self-insured products to smaller employers (purchase of Great West chassis was a strong highly accretive acquisition). Anthem lacks a well-oiled self-insured strategy for servicing large multi-site employers. They also have had a harder time convincing consultants that they are as relevant as Aetna and [UnitedHealthcare] on the next generation of solutions such as ACOs and value-based contracts. Cigna has very little insured business and has historically lacked the unit cost economics of Anthem. The marriage gives size, service platforms for consumer engagement and infrastructure to handle any sized client. Aside from commercial insurance, a combination gives them 6% market share in Medicare Advantage versus United’s 20% and an even bigger share by Aetna (if they are successful in purchasing Humana). Medicare market share will matter to these firms for organic growth.
How will the merger affect competition?
The industry has historically not seen huge dividends from these large combinations because it has not necessarily resulted in lower health care costs and because the barriers to entry (negotiated discounts with providers) remain high for new entrants.
I don’t see a flurry of new competitors coming in. I’d love it if Oscar [Health Insurance] took off. However, they lack the discounts that many larger employers with normal claims utilization consider a prerequisite.
If you look at public exchanges, new entrants such as purchasing co-ops lost $375 million in 2014! Not a promising picture of how new competitors can fill the space vacated by a large competitor.
The only hope is more hospitals/health systems take-risk based contracts as accountable care organizations and fill the national void with myriad local fee standing health plans who can give the remaining national carriers a run for their money and keep competition alive.
I’m also still unclear as to how the not-for-profit Blues would react. The Consortia of NFP Blues and Anthem coordinate for serving large, multi-site employers. Not sure whose claims admin systems would be used. Frankly, the existing Blue Card and admin costs associated with coordinating across the confederacy of Blues plans leaves them a little disadvantaged. Their cost position tends to neutralize these concerns with clients. To have seamless national administration would be outstanding, but I’m not sure if this combination can achieve that.
What does the merger mean for brokers?
Brokers are already in trouble due to shifts toward self-insurance, compensation transparency, greater demand for clinical and technical expertise and a more labor intensive and competitive market. Many will only find themselves further behind the ball.
About Michael Turpin: