Insurer Mergers
The Godzilla vs. King Kong of Health Care

Big Insurance is poised to get a lot bigger. The WSJ reports that United Health Group and Anthem are looking to buy up smaller insurers like Aetna and Cigna in a flurry of “takeover activity… even by the standards of what has become one of the hottest mergers-and-acquisitions markets in years.” Some might worry about this consolidation of insurance companies—already often seen as the central villains in America’s health care drama. But the WSJ story also notes one way, at least, that this consolidation might actually benefit consumers:

Getting bigger also can give insurers increased leverage in negotiating rates with hospitals, many of which have themselves gained clout through mergers—among each other and with doctor practices. The number of hospital merger-and-acquisition deals hit 100 last year, up from 50 in 2009, the year before the health law was passed, according to research firm Irving Levin Associates.

Insurers, for their part, are trying to forge complex contracts with health-care providers that involve new forms of payment—arrangements that hospital systems aren’t likely to entertain unless an insurer covers a lot of their patients.

Hospital mergers have become an important driver of price increases in the U.S. health care system in recent years as hospitals have gained market power over insurers. The costs of Big Hospital might only become more severe in the coming years due to ACA regulations that incentivize consolidation. One way to combat that process is stricter FTC regulation of hospital monopolies, of which we have seen some signs in the past few years. But assuming that the government fails to break up big hospitals, bigger insurers that can drive a harder bargain with those hospitals might, surprisingly, actually end up being the next best thing for the consumer.

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