How Health Policy Played a Role in the Recent Spate of Mega-Mergers Involving National Health Plans
By Ken Perez, vice president of healthcare policy, Omnicell, Inc.
“If at first you don’t succeed, try, try again.”
During the first half of 2017, two mergers, each pairing national health plans—Aetna with Humana and Anthem with Cigna, respectively—were blocked by two federal judges, both of whom concluded that the mergers would reduce competition in the health insurance market and, therefore, raise prices.
Departing from the horizontal merger approach, three national health insurers are now involved in proposed or possible vertical mergers. CVS Health announced its intent to acquire Aetna in December 2017; Cigna announced its plan to acquire pharmacy benefits manager Express Scripts in March 2018; and Walmart is reportedly in acquisition talks with Humana. Because of their size, the interesting value delivery chains they would create, and potential synergies, these corporate combinations have been described as disruptive and industry game-changers.
From a health policy standpoint, what has contributed to these mega-mergers?
First, the specter of a single-payer healthcare system—as most ardently promoted by Sen. Bernie Sanders (I-Vt.)—has been greatly diminished by the election of Republican Donald Trump as president in 2016, continued Republican majorities in both the House of Representatives and the Senate, and perhaps most saliently, the passage of the Tax Cuts and Jobs Act of 2017 (TCJA) in December 2017.
It is a truism in Washington, D.C. that taking back something that has been given to the public is hard, if not impossible. Since a single-payer healthcare system would clearly entail a major expansion of the federal government that would require not only the repeal of the TCJA’s tax breaks for individuals and corporations, but also the imposition of additional tax increases, it would appear to be a political impossibility for at least until 2021.
Second, Medicare Advantage (MA), Medicare’s managed care program, increasingly is where the action is for health plans. Congressional Republicans strongly support MA, and the program is gaining in popularity with Medicare beneficiaries. The Centers for Medicare and Medicaid Services projects that 20.4 million people will enroll in MA for 2018, an increase of 9 percent over 2017, about three times faster than the growth of the total Medicare enrollee population. More than a third (34 percent) of Medicare beneficiaries are enrolled in MA.
The proposed mega-mergers involving Aetna, Cigna and Humana secure control of significant shares of the Medicare population, including sizable shares of the MA enrollee pie.
Moreover, the MA star ratings program, which measures and rewards clinical quality, customer satisfaction, and other beneficiary experience areas, has proven to influence MA enrollees. According to the PwC Health Research Institute, in 2015, 52 percent of MA enrollees were in the highest-rated plans (4 or 5 stars); in 2017, that rate had increased to 68 percent.
The proposed mega-mergers are well positioned for improved MA star ratings performance, since they would provide broader value delivery chains that could span health insurance, pharmacy benefit management, retail and/or online pharmacy, and various other medication adherence-related and member engagement services. These integrated services could enable various kinds of narrow networks, and ultimately could contribute to improved population health management.