There had been a recent flurry of acquisitions of publicly traded health insurance companies in the U.S.  Aetna with 22 million covered lives is to acquire Humana with 10 million covered lives. Anthem with 38 million covered lives is to acquire Cigna with 15 million covered lives. All told, the five largest health insurance companies would cover 155 million U.S. lives—roughly 50 percent of all Americans with health insurance—and over 80 million people through plans not offered through employers or the government—again, more than half of the 160 million Americans who have coverage through so-called “private insurance.”

Many are touting this as a good thing, such as the executives at these merging companies, who are saying, “We will be able to operate more efficiently and negotiate more effectively with large health systems.”

Many also think bigger is better for the consumer as these consolidations will drive down the costs of policies.


Case studies analyzing the effects of health insurer mergers paint a different picture. A National Bureau of Economic Research analysis of the 1999 merger between Aetna and Prudential found that due directly to the increases in payer market share, total premium increased 7 percent. This translates into billions of dollars in profits for insurers. A second paper published in 2013 in Healthy Management, Policy and Innovation demonstrated a premium increase of 13.7 percent in the state of Nevada due to a merger of United Healthcare (one of the three largest health care payers in the U.S.) with Sierra Health Services. This paper went on to say that large insurance mergers are anti-competitive and cause injury to consumers through an increase in the price of health insurance premiums and services.

Aetna and Anthem are publicly traded companies. They are judged on their performance, and their stock price reflects this.  Both are beholden to shareholders. Increased revenues due to increases in premiums may play well with Wall Street, but customers (e.g., those with health insurance policies) may take a back seat to this.

Payer consolidation may also provide for increased bargaining power with providers, providing an ability for these bigger health insurers to extract favorable pricing (with the potential for increased profits). However, we have to be careful with this as too much extraction in favorable pricing may lead to degradations in overall quality; providers may exit the market or alternative provider types may take their place (e.g., a nurse practitioner replacing a physician). In the end, though, the health care insurance companies have a very good chance for increasing their profits thanks to better bargaining power–again good for Wall Street.

Consolidation looks like a win-win for payers, and potentially a “lose-lose” for consumers because of higher prices and less choice. Let’s see how this round play out.