Aetna's Humana deal to bring scrutiny on other insurer tie-ups: experts | Business News

Aetna’s Humana deal to bring scrutiny on other insurer tie-ups: experts

4 Jul 2015 | Author: | No comments yet »

Aetna-Humana Merger Marks Sway of Health-Care Law.

More than a third of the U.S. population has health coverage through an insurer that either wants to make a huge acquisition or is about to be swallowed up in one.Aetna has agreed to buy rival health insurer Humana paying about $35 billion in cash and stock for the second-largest US provider of private health plans for the elderly.The Affordable Care Act has weathered its share of punches in recent weeks, including a Supreme Court challenge that could have led to its unravelling. AET -2.63 % ’s $34.1 billion deal to buy Humana Inc., HUM -2.92 % announced early Friday, marks the first combination following weeks of deal talks among the largest health insurers as they race to bulk up in a market reshaped by the federal health-care overhaul.

In Florida, several big-name insurance providers — including Aetna, Cigna, Coventry and United Healthcare — have already proposed double-digit rate increases for individual health insurance plans, federal records show. That came a day after Centene Corp. and Health Net Inc. announced a smaller deal and a couple of weeks after Anthem Inc. went public with its offer of more than $47 billion for Cigna Corp. The 2010 health reform law known as Obamacare spurred deals by introducing rules that push insurers to look for savings, and by creating millions of new customers.

The figures are not final, and they represent only a slice of the plans available on the individual insurance market. (Companies requesting single-digit hikes don’t have to publish their rates until later in the year.) But experts are confident they’ll see an upward trend, both in Florida and nationwide. “There are reasons to believe the premiums are going to be higher in 2016,” said Larry Levitt, a senior vice president at the nonpartisan Kaiser Family Foundation. The tie-up would create the No. 2 health-insurance company by revenue, pairing Humana’s strong Medicare franchise with Aetna’s core business of selling coverage to employers. The nation’s biggest insurer, UnitedHealth Group Inc., also has kicked the tires on making an offer to Aetna Inc., according to The Wall Street Journal. In September, a Republican Party of Florida television ad claimed rates had shot up more than 30 percent in Florida since President Obama’s signature law took hold — a claim rated mostly false by PolitiFact Florida. Health insurers routinely detail the earnings and savings they expect from these mega deals, but the impact on the average consumer can’t be boiled down to crisp dollars and cents.

Humana CEO Bruce Broussard flagged changes in the health-care system that are often tied to the law, including an increasing focus on selling to individuals rather than employers. Last year, the average premium for a 40-year-old non-smoking Floridian with a silver plan ticked up 1.8 percent, or about $5, according to a Kaiser analysis. The law created health-insurance marketplaces where consumers can buy their own coverage, and provides federal subsidies to help lower-income people purchase plans.

The cynic might argue that a bigger insurer will charge whatever it wants and not sweat losing a few customers because it has millions to spare and less competition. Together, Aetna and Humana would have more than 33 million health insurance customers and about $115 billion in annual revenue, creating the second largest US health insurer by sales, after UnitedHealth Group. The law also helped prod a movement away from paying doctors and hospitals a fee for each service, and toward reimbursement methods meant to reward more-efficient care, another trend Mr.

Broussard cited as a key driver of the deal. “As the industry has transitioned through health care reform, we are seeing the needs of competing for the future—offering more choices, investing in technology, and the ability to have scale,” Mr. Cigna last month rejected a $47 billion bid from Anthem, saying the offer wasn’t in the best interests of shareholders and that Anthem executives weren’t fit to lead a merged insurance giant. When asked what was driving the increases, Aetna spokesman Rohan Hutchings pointed out that health care spending was expected to jump from $2.9 trillion in 2013 to $5 trillion in 2022. “The rates that we are filing simply reflect the costs of health care, including the cost of services, the amount of services people will receive and an increase in pharmaceutical costs,” he said in a statement.

Cigna spokesman Joe Mondy said the pricing was based on multiple factors, including “our customers’ full-year 2014 clinical experience and claims payments” and “factors such as the phase out of the government reinsurance program and expectations on the changing risk pool in 2016.” The rate changes won’t be the same for everyone. Both chief executives said they are confident the transaction will be approved, citing complimentary, rather than overlapping strengths—Aetna in commercial selling, and Humana in Medicare. An estimated 45,700 consumers covered by Cigna, for example, could see their premiums dip by as much as 2.6 percent — or spike as much as 38.3 percent, according to company filings. Some companies, including the state’s largest health insurer, Florida Blue, have not disclosed any information about their 2016 rates because they are not proposing large increases. These acquisitions still must be approved by shareholders, and regulators have to review them to make sure no company gains an unfair advantage in any market.

Explained Florida Blue spokesman Paul Kluding: “Since we filed them as trade secret with the (Office of Insurance Regulation), we cannot publicly discuss (them) until all rates are revealed.” As of Wednesday, the insurer discontinued its low-cost Go Blue plans, which provided few benefits beyond preventative care. There is no “hell or high water” provision that would require Aetna to take any necessary steps to satisfy regulators, nor has Aetna committed to a specific level of divestitures, the people said.

And given minimum benefits that are required in the ACA plans, some will have to pay more than they currently do.” Michael Palin, of New Port Richey, had been paying $79 a month for his wife’s Go Blue plan. Following the June offer, which Cigna publicly rebuffed, Cigna and Anthem have rekindled talks about a deal that, following Aetna’s and Humana’s agreement, would trim the five largest insurers to three. Bertolini and Broussard said they were operating under the likelihood that multiple transactions could go before regulators in the near future, and see a benefit to moving early.

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