Dive Brief:
- Last week, Cigna reported that low second-quarter medical use helped keep costs down, which allowed the company to beat Wall Street profit estimates.
- Anthem made a similar statement in its second-quarter report.
- The announcement came the same week Cigna said it was selling to Anthem for $47 billion.
Dive Insight:
A weaker economy has led to lower service utilization over the last five years, which along with membership growth, has helped boost profits for insurers.
But healthcare spending is expected to rise as the economy continues to improve. And millions more people are now also insured under the Affordable Acre Act, which will also comtribute to increased utilization.
The insurance industry has reponded by consolidating to build scale in order to keep costs down and improve negotiating power. "The reason why there is so much consolidation is because utilization and the cost trend overall will go up, which will pressure the profitability for these companies long term," Morningstar Research analyst Vishnu Lekraj told Reuters.