First it was the hospitals and the doctors. Now it’s the insurance companies. Pharmaceutical companies and other healthcare industries will be doing it soon.
What am I talking about? Mergers and acquisitions. Everyone connected to providing healthcare either by services or manufactured products is looking to consolidate; grow larger by purchasing their competitors or richer by selling off their assets. It’s all part of the larger plan of our new healthcare system called ObamaCare.
I discussed this trend in an earlier post called Hospitals Growing Under ObamaCare. That was all about hospital mergers and their purchase of private practice physicians. Now we see the same trend in larger insurance companies.
The Wall Street Journal editorial board reports that the five largest commercial health insurance companies in the U. S. have contracted “merger fever.” UnitedHealth is chasing Cigna and even Aetna; Humana has made itself available for sale; Anthem is also wooing Cigna, which is thinking about buying Humana. Given this trend, the logical conclusion is that one day we will have one monster conglomerate – one controlled by the government.
The WSJ board tells us why this should be of concern: “The danger is that ObamaCare is creating oligopolies, with the predictable results of higher costs, lower quality and less innovation.”
What is driving this trend to mergers and acquisitions?
“The economics of ObamaCare reward scale over competition. Benefits are standardized and premiums are de facto price-controlled. With margins compressed to commodity levels, buying more consumers via mergers is simpler than appealing to them with better products, to the extent the latter is still legal. Synergies across insurer combinations to reduce administrative overhead and other expenses also look better for shareholders.”
In other words, ObamaCare regulations make it difficult to make a profit with better packaging of healthcare insurance or better quality since every insurance company must provide the same treatments in every policy. Profit margins have been lowered by requirements to cover everyone with pre-existing conditions and with elimination of caps on lifetime expenditures. Volume must make up for declining profit margins. The best way to increase volume is acquire other insurance companies.
Doctors have been feeling this crush of declining profit margins for years. Initially they responded with increased volumes by marketing campaigns, advertising, hiring low-cost providers (nurse practitioners and physician assistants) and forming larger physician practices. Now the trend is to sell out to the hospitals.
The economic environment is ripe for mergers. Credit is historically cheap due to low interest rates. Insurers have built franchises in different areas that could be complimentary when merged. There is little concern over antitrust since selling coverage to employers doesn’t overlap with other services like managing Medicaid for states. For this same reason it is likely we will see some of the BlueCross BlueShield non-profits up for sale soon.
The government is rapidly becoming the largest consumer of healthcare services – even in the private insurance market. Aetna CEO Mark Bertolini, speaking at a recent Goldman Sachs conference, “The feds happen to be, for most of us now, our largest customer. So there is a relationship you need to figure out there if you’re going to have a sustained positive relationship with your biggest customer. And we can all take our own political point of view of whether it’s right or wrong, but in the end-analysis, they’re paying us a lot of money and they have a right to give us some insight into how they think we should run our business.”
This should come as no surprise to those who have been closely following the transformation of our healthcare system since the passage of ObamaCare in 2010. Behind all the rhetoric, the numerous bold misrepresentations, and outright distortions of the plan and purpose of ObamaCare, there has always been a two-fold plan: government control of healthcare and redistribution of wealth.
Though ObamaCare is failing in its publicized goals of providing quality healthcare and insurance to all Americans, bending the cost curve of healthcare expenses, and maintaining or improving the quality of care, it is certainly doing a good job of increasing government control and redistributing wealth. No one in the healthcare industry can deny the increased government control of ObamaCare – and 87% of those purchasing healthcare insurance on the exchanges are getting taxpayer-funded subsidies. This is wealth redistributed from taxpayers to non-taxpayers. (47% of Americans pay no federal income tax.)
President Obama has delivered on his promise of change. Just not the change we were hoping for.