Framework for Understanding Health Insurance Consolidations [September 22, 2015]   [open pdf - 132KB]

From the Background: "Like any viable business sector, the health insurance industry is dynamic. Insurers employ numerous strategies to achieve enterprise objectives, including mergers and acquisitions (M&A). While the specific motivations for each transaction vary, insurers pursue M&A to enhance (predicted) value, such as larger revenues or greater efficiencies. Consolidation concerns are rooted in the concept of market power (i.e., the ability to raise prices by affecting supply, demand, or both). Insurers exert market power as buyers of services from health care providers and as sellers of health plans to purchasers (individuals, employers, and governments). To the extent that any one insurer may dominate a market (market concentration), it may influence negotiations with providers, affecting payments for services. Insurers incorporate these payments in the determination of premiums. Since the majority of premium revenue is spent on medical claims, a change in provider payments may lead to premium adjustments. Thus, the final premiums charged to purchasers may reflect an insurer's market power. Concerns about market power underlie the pending mergers that involve several of the largest U.S. health insurers: Aetna, Inc. and Humana, Inc., and Anthem, Inc. and Cigna Corporation. Aetna and Humana each already has national presence, and a combined Anthem and Cigna would create the largest insurer, by health enrollment. However, health care generally is obtained at the local level, focusing attention on the impact of mergers in local health insurance markets (a notable exception is a multistate market for 'administrative services only' services for large businesses that self-insure)."

Report Number:
CRS Insight, IN10362
Public Domain
Retrieved From:
Federation of American Scientists: http://www.fas.org/sgp/crs/index.html
Media Type:
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