The health insurance industry, already consolidating into fewer players, appears to be headed for another round of mergers and acquisitions this year, analysts and health industry executives said at this week’s UBS Global Healthcare Services Conference in New York.
With medical costs continuing to soar, health plans say they are looking at mergers as a way to reduce administrative costs while also gaining more leverage when negotiating rates with doctors and hospitals. And increasing the number of health plan enrollees also allows consolidating insurers to spread medical expenditures across a larger pool of patients.
The predicted consolidations will come on top of last year’s announcement of a giant merger between Anthem Inc. of Indianapolis and Wellpoint Health Networks Inc. of Thousand Oaks, Calif. That deal, which will create the nation’s largest health plan, with its 26 million members, is expected to close by midyear.
Also nearing completion is UnitedHealth Group’s plan to buy Maryland-based Mid Atlantic Medical Services Inc. Once completed by the end of the first quarter, the larger UnitedHealth will have more than 20 million members.
On Wednesday, UnitedHealth’s chief executive, Dr. William McGuire said the Minneapolis-based insurer would consider more “M&A activity,” given its strong balance sheet and cash flow.
Even Aetna Inc. is poised to join its larger rivals in a renewed effort to grow through mergers.
Just four years ago Aetna was the nation’s largest health insurance company, with more than 19 million members, but the Hartford, Conn.-based giant’s enrollment has fallen to about 13 million after a deliberate decision by management to exit unprofitable markets.
Aetna Chief Executive Dr. John Rowe, the architect of a turnaround since he arrived in September 2000, says the company is now open to purchasing smaller, regional health plans “in the range of $500 million.”
“We have no appetite for the megatransaction,” Rowe told analysts this week at the UBS meeting at New York’s Plaza Hotel.
More Top Picks Black Friday And Cyber Monday Gym Equipment Deals
When Aetna was the largest U.S. health plan it was known for using its clout to be aggressive and often contentious when negotiating contracts with doctors and hospitals.
But Rowe says Aetna has made inroads at repairing relationships with doctors and hospitals, which are key to adding new customers.
“The whole tone of the conversation [with medical care providers] is different,” Rowe said.
Analysts believe the larger Anthem and Wellpoint, which primarily operate Blue Cross and Blue Shield plans, will be in a position to attract even more Blues plans once their deal is complete. The deal, however, has myriad federal and state regulatory hurdles to clear in the coming months.
“We will get this deal done,” Wellpoint Chief Executive Leonard Schaeffer told some analysts after a presentation Tuesday.
Health insurance group director: Matthew Napierkowski, 34, has been named executive director of the Illinois Association of Health Plans, which lobbies on behalf of the state’s health insurance industry.
Napierkowski replaces Elena Butkus, who resigned in December to join the Illinois Hospital Association as vice president of finance.
Napierkowski has been director of health-care policy for the Illinois Association of Health Plans since January 2001. Before that he was on the legislative staff for the Illinois State Senate Republican caucus for eight years.