Skip to main content
The Keckley Report

Health Insurer Consolidation: What Does the New “Big Three” Mean for the Rest of Us?

By July 6, 2015March 1st, 2023One Comment

The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article. 

Last week, we learned Aetna reached an agreement to buy Humana in a $37 billion deal and Anthem insisted its spurned offer to acquire Cigna is still on the table in a deal valued at $54 billion.

The rationale for these is clear: The commercial insurance market is shrinking and thinning operating margins in the core business of selling group plans to employers. The new growth market – Medicaid and Medicare – is not as profitable, so bigger scale is necessary to maintain services and fund growth into new markets and new businesses. It’s that simple. In the insurance industry, at least for the next few years, the “Big Three” will be United, Anthem and Aetna, if these deals close as expected (see Fact File).

The fact is, the consolidation of these plans will not result in a “too big to fail” scenario in most markets. They will trail Blue Cross plans in many markets, especially in the southeast, and they’ll face regulatory scrutiny in places where their combined strength threatens competition. But the consequences in the system are no less significant.

For hospitals, the stakes are high. The tension between hospitals and plans is palpable in many markets, but simultaneously plans are courting hospitals to partner in risk sharing relationships like bundled payments and accountable care organizations. And some hospitals are starting their own plans to compete with private insurers reasoning it’s the only way to be paid to manage health. The “Big Three” bring powerful analytic tools capable of mining claims, utilization and clinical data. Each has access to capital, capabilities in population health and care coordination, plan design and marketing prowess in contracting with employers, individuals, and government. The relationship between plans and hospitals is a testy relationship already. Consolidation of the “Big Three” will prompt hospital boards to revisit their collaborate-or-compete strategies.

For physicians, it means more of their income and clinical autonomy will be subject to the coverage and denial policies and procedures of the “Big Three” that already use powerful analytic tools in their analyses. Reputation and individual physician preference will take backstage to data about adherence to evidence, inappropriate variation, outcomes, efficiency, patient experiences and more, and narrow panels will replace open networks. Shared risk arrangements and physician profiling are a critical focus of the “Big Three”. For physicians, contract negotiations with the “Big Three” will be more aggressive and access to clinical and financial data about the performance of the practice table stakes.

For employers, the issue is cost. That’s it. As chronicled on page one of Saturday’s New York Times, rate increases for 2016 are likely to be higher than any seen in recent years. Large self-insured employers will dodge the bullet somewhat, but smaller and mid-size companies and individuals will take the biggest hit. The “Big Three” will challenge employers to consider innovative ways to reduce costs and improve quality. They will promote high deductible plans, carve outs, reference pricing and hyper-narrow networks as employers brace for the Cadillac tax and employer mandate ahead. For employers, head-to-head competition among the “Big Three” and the Blue Cross plans is seen as a positive IF lower cost is the result. They’ll watch closely. They’re paying attention.

For drug companies, it’s certain to strengthen the hand of the “Big Three” in purchasing expensive drugs at a steeper discount, or in their placement in a more restrictive formulary wherein cheaper drugs with at/near equivalent efficacy are used first. The “Big Three” are keen to lower drug costs: that’s job one. Specialty pharma costs are a vexing issue among plans. At $84,000 for a course of treatment, Solvaldi works well for hepatitis C patients, and Gilead booked more than $10 billion from its sale last year. But health insurers face pushback when trying to pass these costs through in premiums. With costly new drugs for cancer, super-statins and others on the market soon, the “Big Three” will amplify calls for stricter access and lower pricing for drugs.

For state and federal policymakers, the advent of the “Big Three” will spark refreshed urgency to answer questions about expanded coverage and the future of the insurance system itself. In the Affordable Care Act, an initial set of reforms was initiated. Access to coverage via Medicaid expansion and insurance marketplaces (a.k.a. exchanges) increased, but issues remain in how our country goes about financing the care we use. And, the government can play a strong hand in determining the direction and tone of the discussion. Between Medicare and Medicaid alone, the government insures more than 124 million. The government will watch the “Big Three” carefully while long-term reform in the insurance system enters a new phase. The balance of regulatory oversight between states and the federal government, the potential for a new “pre-Medicare” plan, purchasing coverage across state lines and other issues will be front and center in D.C. and every state legislature. Re-visiting regulation of the insurance industry’s future is a risky proposition for lawmakers but unavoidable.

The “Big Three” automakers lost ground to imports. The “Big Three” television networks lost viewership to cable. The Big Eight accounting firms are now four. And the Big Four U.S. airlines found out last week they’ll be in court for price gouging while fuel costs went down and fares went up.

Being big is no guarantee of success. Change is a constant in the U.S. health insurance market. For every stakeholder in the U.S. system, the new “Big Three” and evolving role of the Blue Cross plans is only another chapter in the book “Financing Healthcare” in which its final chapter is yet to be written.


PS: Special thanks to Marina Karp and Jing-yuan Qian for their assistance in compiling and analyzing the insurance data summarized in today’s Fact File.

Sources: Bob Herman, “Risky Business: More Health Systems Launch Insurance Plans despite Caveats,” Modern Healthcare, April 6, 2015; “Provider-Owned Plans Fare Well in Wake of Affordable Care Act,” AM Best Financial Review, February 26, 2015; Jeff Goldsmith, Lawton P. Burns, “Integrated Delivery Networks: Is the Whole Less than the Sum of the Parts” Modern Healthcare, March 9, 2015; Melanie Evans, “Hospital Health Plans tighten Tension with Insurers,” Modern Healthcare, March 23, 2015; Robert Pear, “Health Insurance Companies Seek Big Rate Increases for 2016,” New York Times, July 3, 2015;Moody’s: Healthcare Quarterly looks at developments in US healthcare in 2015 Moody’s Investor Service – Global Credit Research,  January, 2015; Melanie Evans, “Despite Rate Complaints, Advantage Plans continue to Grow,” Modern Healthcare, April 13, 2015; “Deals” Anthem, Cigna Talking as Centene Makes Deal Cigna also continues to pursue possible takeover of Humana, Wall Street Journal, July 2, 2015; Philip Bump, “Barack Obama: The health-care industry president,” Washington Post, July 2, 2015

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

©2015 Navigant Consulting, Inc.

One Comment

  • Maggie Mahar says:

    Excellent analysis.

    Just one caveat– the fact that the NYT suggests that insurance premiums will be going up next year does not make it true.

    The NYT Robert Pear wrote a similar pice in 2014, saying that in 2015 customers would face "sticker shock". Turns out he was