With Humana poised for a possible merger, industry watchers are speculating on how a Humana deal would impact the health insurance market.
In a word: consolidation.
A merger with any of the major market players such as Anthem, Cigna or Aetna would substantially consolidate the market and give insurers more leverage compared to providers, suggests Dr. William Bithoney, Chief Physician Executive and Managing Director in BDO's Healthcare Advisory practice leading Clinical Strategy.
"I think the consolidation is going to be great for the profitability of the insurers that are left standing," Bithoney tells Healthcare Dive. "I think it will represent more of a challenge to hospitals and providers who can be squeezed more and more given the constriction of the available payers."
As the second-largest provider of Medicare Advantage, which is growing daily with the entrance of aging baby boomers, "Humana is really in the sweet spot," Bithoney says. Analysts suggest its interest in selling is likely due to lackluster performance on plans sold through ACA health exchanges and to high medical expenses.
Bithoney notes that consolidation will fuel the trend toward narrow networks and that hospitals and providers will be at higher risk of being excluded from networks if they are not performing in the top quartile of quality metrics.
"This is a harbinger of that because when insurers get more powerful it's to their great benefit to narrow their networks, and it's probably to patient benefit too—except if you can't see your doctor," Bithoney says.
He suggests the consolidation will fuel further consolidation, particularly of other organizations that have great Medicare positioning.
Among other industry watchers, sources for Business Insurance suggest further consolidation of the health insurance market to three or four major companies could increase insurers' influence with regulators, as well as benefit employers providing group coverage.
"These larger plans may begin to push back on [Centers for Medicare and Medicare Services] regulations,” Deb Mabari, CEO of Tampa. FL-based Cody Consulting, told Business Insurance. "Even now, many health plans see CMS' aggressive style as a hindrance to providing the best and most cost-effective services to their clients; and with increased clout in the market, plans may begin resisting further changes and enhanced oversight."
Mabari adds that consolidation could contribute toward another outcome: the creation of nimble, niche startup plans that use cost-effectiveness and small geographic focus to compete with the big players.
Meanwhile, Humana's silence is fueling growing speculation that talks are underway. The company has told the media that it will not comment on the speculation and will observe a quiet period until it announces second-quarter results on July 29. Aetna, Anthem, Cigna and UnitedHealth also declined to comment for Business Insurance.
Leerink analyst Ana Gupte wrote in a research note that Aetna, Anthem and Cigna Corp. are all likely candidates as buyers. "We also conclude that the talks will likely culminate in a deal," she wrote.
Want to read more? You may enjoy this feature about how Humana strategy bets big on narrow focus.