Not yet a Member?
HR Magazine is highlighting the next generation of HR leaders.
Is your employee handbook ready for the New Year? With SHRM’s Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Attend a comprehensive, instructor-led review before you sit for your SHRM exam.
Learn to implement the complex changes and ensure compliance with the FLSA. 2-Week Virtual Seminar, Nov 29-Dec 8.
Will insurers’ increased negotiating leverage translate into better pricing for employee plan participants?
Mergers among the biggest names in the health insurance industry will mean greater economies of scale for the insurance firms that many employers contract with to provide group coverage, and which self-insured employers use for third-party administrator services. But whether insurer consolidation will translate into better deals for employers and plan participants remains to be seen.
On July 3, 2015, Aetna announced its plan to buy Humana for $37 billion; the combined company will cover more than 33 million people. Three weeks later, on July 24, Blue Cross-Blue Shield carrier Anthem agreed to acquire Cigna in a $54 billion deal that will create the nation's larger health insurer by enrollment, covering 53 million members.
These deals must receive regulatory approvals; if they do so, they are expected to close in the second half of 2016. That would leave just three key players: Aetna-Humana, Anthem-Cigna and UnitedHealth, which recently completed its own $12.8 billion acquisition of Catamaran, a pharmacy benefit manager (PBM) and prescription provider.
In the wake of these announcements, “Large employers will have concerns about the merger between Anthem and Cigna because employers will be left with only three major insurers that can support large multistate employers on a nationwide basis,” Brian Marcotte, president and CEO of the nonprofit National Business Group on Health, an employers’ coalition, told SHRM Online . “Many large employers offer more than one national plan to provide employees with choice, cover provider network gaps and to have insurers compete on performance, strategy, cost management and innovation. One less option means less competition in all areas.”
Health insurers claim they have been at a disadvantage as hospital systems and other health provider networks, along with PBMs, have themselves been consolidating in recent years—often under the radar. The insurers say their own mergers will rebalance the playing field, increasing their ability to negotiate lower costs with care providers and drug companies. But Marcotte advised, “Employers will want to see [whether] the additional negotiating leverage, coupled with efficiencies of scale, translate into better pricing for them and employee plan participants.”
Similarly, a July 23 analysis of the deal between Anthem and Cigna in Becker’s Hospital Review, a trade publication, predicts that “The consolidation is unlikely to reduce employer costs or really bend the cost curve” as it will mean fewer insurer options for employers while increasing the newly enlarged insurers’ leverage with employers. “As the number of insurers shrinks from five to three, [they] will likely have more leverage on both sides of the equation—with employers and [health care] providers.” Self-insured employers “who are large enough may resort to trying to work around the payers” by negotiating costs directly with hospital and health care provider networks, the analysis concludes.
“Fiscal concerns remain the dominant driving force among most health plan sponsors,” commented Edward A. Kaplan, national health practice leader at The Segal Group, an HR consultancy, after the Anthem/Cigna disclosure. “While we hope that these recently announced mergers’ promise of better leverage and lower costs come to fruition,” he noted, employers “are concerned they will have less choice and less flexible and responsive business partners without healthy market competition, and the cost advantages of these larger entities may not be realized by those ultimately paying for the care.”
Following the Aetna/Humana announcement (but before Anthem and Cigna made their intentions public), an employer survey revealed that companies have varying opinions on the impact that existing and future health insurer consolidation will have on their health and benefits strategy.
Aon Health’s July 8 poll of approximately 100 large and midsize employers showed that 44 percent of respondents did not expect to make any meaningful changes to their overall health strategies due to insurer consolidation, while 54 percent said they were considering a few options, including:
• Reassessing their current vendor within the next two years (38 percent).
• Adopting third-party vendor solutions, such as telemedicine or transparency to supplement what the health plan provides (13 percent).
• Supplementing national carriers with regional/local players (5 percent).
“Despite whether employers think merger consolidation is good or bad for the industry, most do not feel the need to wait to see how the market shakes out before moving forward with their longer-term health care strategies,” said Tucker Sharp, global chief broking officer at Aon Health. “Employers know they need to take action now to address the impact of inevitable premium increases and the upcoming 2018 Affordable Care Act excise tax.”
Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow Me on Twitter.
Related SHRM Articles:
Urge to Merge: What to Expect from Fewer but Bigger Vendors, SHRM Online Benefits, July 2015
Health Costs Projected to Rise 6.5% for 2016, SHRM Online Benefits, June 2015
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
HR Education in a City Near You
SHRM’s HR Vendor Directory contains over 3,200 companies