The health insurance business is changing.
Image: Toby Talbot/Associated Press
By The Associated Press 2015-07-24 15:03:54 UTC
Health insurer Anthem, the parent of Blue Cross and Blue Shield, is buying rival Cigna for $48 billion in a deal that would create the nation's largest health insurer by enrollment, covering about 53 million Americans.
Anthem, based in Indianapolis, is currently the nation's second-largest health insurer, while Cigna ranks fourth in terms of enrollment.
Anthem specializes in selling individual coverage and insurance to workers of small businesses. It also has grown its government business, which includes Medicare, Medicaid and coverage of federal employees.
Health insurance is Cigna's main business, but it also sells group disability and life coverage in the U.S. and it has a growing international segment that Anthem lacks. Much of Cigna's health insurance business involves coverage where the employer pays the claims and then hires Cigna to administer the plan, a growing and less-profitable form of coverage in employer-sponsored health care.
The trick: no one knows for at least a year what this will mean for their health insurance coverage. The impact these big acquisitions have on consumers likely won't be felt until mid-2016, because insurers have already finalized most of their plans for coverage that starts in January.
Insurers merge to benefit insurers. Whether consumers benefit or not — which is an open question — is incidental. Just saying.
— Larry Levitt (@larry_levitt) July 24, 2015
What is clear is that Obamacare, the government-subsidized health insurance plan that passed Congress in 2010, has changed the landscape of health insurance as the big insurers band together in the hope that they will be able to negotiate lower prices.
In just three weeks, starting with Aetna's $35 billion bid for Humana Inc. on July 3, the landscape of U.S. health care has been altered in a buyout frenzy that could transform five massive U.S. health companies into just three, including UnitedHealth Group.
That created mixed reviews for the effect of Obamacare — which the Supreme Court just upheld again in June — with the left praising it and the right expressing irritation.
Anthem to buy Cigna for $48b, the latest score for Glenview's long-running Obamacare bet. It's made more than $3.2b. http://t.co/v5CFCn2C7V
— Dave Benoit (@DaveCBenoit) July 24, 2015
Five big insurers seem set to become three, as Aetna buys Humana and Anthem eyes Cigna. Thanks, ObamaCare
— WSJ Editorial Page (@WSJopinion) July 6, 2015
Larger insurers have negotiating power to squeeze better rates from drug companies and health care providers.
But the wave of mergers is likely to lead to fewer choices for consumers in certain markets, and it could increase the stress on customer service as well, as some quipped.
You know how they claimed Obamacare would result in giant waiting lines for your doctor?
you ever tried calling Anthem's phone number?
— Phil, the Pill (@PhilthePill) July 24, 2015
Regulators scrutinizing the two mega-deals — Anthem/Cigna and Aetna/Humana — will be trying to assess whether these combined companies would have so much power that they could dominate markets and drive already high health-care costs even higher.
Employer-sponsored health insurance is growing slowly and with the recent overhaul of the nation's health care system, providers are jostling for the largest share of the millions of people who have signed up.
The deal announced Friday is valued at $54.2 billion including debt. The companies put the total value at $188 per share.
Industry analysts have pointed out several advantages to an industry consolidation.
A combination may lead to fewer choices and some price changes for consumers, depending on where they live and who already is in their market.
Anthem's combination with Cigna will result in a company with a much broader base over which to spread costs and expenses, and it could make technology investments over the industry's biggest customer pool.
Supporters of the Affordable Care Act celebrate as the opinion for health care is reported outside of the Supreme Court in Washington,Thursday June 25, 2015. The Supreme Court upheld the nationwide tax subsidies under President Barack Obama's health care overhaul, in a ruling that preserves health insurance for millions of Americans.
Image: CQ Roll Call via AP Images Al Drago
Data and technology are playing a growing role in monitoring patients and care. At a very basic level, that means things like tracking whether patients are keeping up with their immunizations.
Insurers also are trying to give consumers better information on the cost and quality of the care they buy, based on their coverage. Deductibles and other out-of-pocket costs have been rising for years. That leaves a growing number of consumers with bigger bills to pay before most of their insurance coverage starts, so it can encourage more to shop around.
Anthem officials have noted that a Cigna deal will help build their company's Medicare Advantage enrollment in states like Texas and Florida. Medicare Advantage plans are privately run, fast-growing versions of the federally-funded program for people over age 65 and the disabled.
The deal is targeted to close in the second half of 2016. Cigna stockholders still need to approve the agreement, and Anthem shareholders need to approve the issuance of shares in the transaction.
Anthem stockholders will own about 67% of the combined company, with Cigna shareholders owning approximately 33%.
The Anthem board will expand to 14 members. Cigna's President and CEO David Cordani and for independent directors from Cigna's current board will join the nine current members of Anthem's board.
Cordani will serve as president and chief operating officer of the combined business, with Anthem's Joseph Swedish as chairman and CEO.