Health Insurer Anthem To Buy Rival Cigna For Nearly $50 Billion

Jul 24, 2015
Originally published on July 24, 2015 7:22 pm
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Transcript

MELISSA BLOCK, HOST:

We're going to examine now what another giant merger in the health care industry could mean for consumers. Anthem, the nation's second-largest health insurer, announced it will buy Cigna, another top-five insurer, for close to $50 billion. Just a few weeks ago, Aetna and Humana announced they would combine. If they're approved by regulators, the deals could reduce the number of large national health insurance companies from five to three. NPR's John Ydstie reports.

JOHN YDSTIE, BYLINE: If the merger of the two health insurance giants succeeds, they would cover around 53 million people. Anthem CEO Joe Swedish said today the combination would be good for consumers.

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JOE SWEDISH: It will improve our ability to serve customers across commercial, Medicaid, Medicare and international markets and create greater efficiencies and affordability for our customers.

YDSTIE: Dr. Jack Rowe, a former CEO of Aetna, says these companies are merging because the requirements of the Affordable Care Act are threatening their profits. Rowe, who's now a professor at Columbia University, says merging can protect profits by reducing costs. For instance, combining customer service centers and spreading IT investments over a larger firm saves money. Second, says Rowe, combining can give the resulting company increased market share and clout in local markets.

JACK ROWE: So that they can be in a better position to negotiate with hospitals and doctor groups and get more favorable contracts.

YDSTIE: Contracts that reduce what the insurers have to pay the doctors and hospitals. That could make it possible for insurers to offer more affordable premiums to their consumers. But Gary Claxton, a vice president and health insurance expert at the Kaiser Family Foundation, is skeptical. He acknowledges that mergers are likely to lead to cost savings for insurers.

GARY CLAXTON: On the other side, however, there'll be fewer insurers competing, so it's not clear that those lower prices will get passed on to consumers. They could well go to the shareholders.

YDSTIE: That could happen if there's not enough competition between insurers in the market. And reducing the number of large national insurers from five to three would appear to undercut competition. But Dan Mendelson of Avalere, a health care consultancy, says that's not necessarily the case.

DAN MENDELSON: Interestingly, most insurance in this country is not provided by those big three companies. It's provided by local operators and BlueCross BlueShield plans that operate in local markets. I don't think that this - that these proposed mergers would meaningfully reduce the amount of competition in most markets.

YDSTIE: But Kaiser's Claxton argues that's not the case in all segments of the market where Anthem and Cigna compete.

CLAXTON: And particularly where both of these carriers have a lot of business and a lot of overlap is the market for large employers, and there's really not a lot of competitors there.

YDSTIE: The American Medical Association, which represents physicians, opposes the merger, saying they will reduce competition and choice. Ultimately, deciding whether that's true falls to government regulators, who could block the deals. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.